PHH Mortgage: The Loan Files Failed, but the Certifications Passed

PHH agreed to pay $74,453,802 in the PHH Mortgage fraud case to resolve allegations that it knowingly originated and underwrote ineligible loans for Federal Housing Administration insurance, Department of Veterans Affairs guarantees and sale to Fannie Mae and Freddie Mac. Its FHA admissions put the problem inside the loan file: missing income and employment documentation, debts treated as paid without proof, and certifications that sent ineligible mortgages into a taxpayer-backed insurance program.

The Justice Department announced the settlements on August 8, 2017, covering some allegations brought by a former PHH employee under the False Claims Act. This page follows PHH’s two agreements, with their different loan programs, corporate payment allocations and whistleblower shares. Our guide to reporting mortgage fraud addresses the next step if you recognize the conduct inside your own company.

What Did the FHA Settlement Cover?

The FHA agreement covered underwriting from January 1, 2006 through December 31, 2011, with insurance claims submitted on or before June 30, 2013. PHH operated as a direct endorsement lender, with authority to originate, underwrite and endorse mortgages for FHA insurance.

As the Justice Department explained, FHA relied on the lender to verify compliance rather than reviewing each loan before endorsement. When an insured loan later defaulted, its holder could submit a claim to the Department of Housing and Urban Development for the resulting loss. The eligibility decision came first. The insurance bill could arrive later.

The person certifying the loan adopts a file that supports the insurance decision, while a later holder may be the business seeking payment. For someone inside origination or quality control, the useful connection is between the condition that went unresolved, the certification that followed and the claim HUD eventually paid.

Debts Disappeared From the Calculation Without Proof of Payment

PHH admitted that some files lacked paystubs, employment verification, proper credit reports, or verification of earnest-money deposits and funds to close. It also admitted failures to document equity claimed in a prior home or to obtain proof that significant debts had been paid. Including those debts pushed borrowers beyond HUD’s debt-to-income requirements.

A debt treated as paid changed the borrower’s apparent ability to carry the mortgage, and that changed eligibility for government insurance. PHH also admitted insuring a loan whose borrower had not met HUD’s minimum investment requirement. The documentation determined whether the loan qualified for public backing.

PHH’s Audit Findings and the Reports HUD Never Received

In 2007, PHH audited a targeted sample of government loans for closing or pre-insuring requirements. Its accuracy measure did not exceed 50 percent during that year. PHH’s own audit had shown it the failures.

PHH admitted the consequence for public money as well. HUD insured loans it otherwise would not have insured, then incurred substantial losses paying claims on those loans. An employee who understands the original file or the review that challenged it can explain how an approval survived information that should have changed the decision.

The Justice Department credited joint investigations by HUD, its Office of Inspector General, and the inspectors general for Veterans Affairs and the Federal Housing Finance Agency. Its Civil Division and U.S. Attorney’s Offices in Minnesota, New Jersey, Southern Florida and Eastern New York also conducted the investigations.

The Justice Department’s account of PHH’s admissions also described the silence outside the company. PHH Home Loans self-reported no deficient loans to HUD during the covered underwriting period and first self-reported deficient loans to HUD after the federal investigation began. We see a reporting system that found its voice after the investigators arrived.

Why Did PHH Have a Separate VA, Fannie Mae and Freddie Mac Agreement?

PHH’s other settlement agreement resolved allegations involving VA guarantees and loans sold to Fannie Mae and Freddie Mac. Those transactions put the lender’s representations before different recipients and exposed different money. FHA insured mortgages, VA guaranteed a portion of qualifying loans, and the housing enterprises bought loans from PHH.

The Justice Department described PHH as an approved VA lender from at least 2005 to 2012. VA’s guarantee supported private lenders making home loans to eligible servicemembers, veterans and surviving spouses on more favorable terms. The settlement resolved allegations that PHH submitted loans for VA guarantees even though they failed VA requirements.

For Fannie Mae and Freddie Mac, the announcement described PHH loan sales from at least 2009 to 2013. The Justice Department alleged that PHH originated and sold loans that failed the enterprises’ requirements. These were allegations about the loans delivered for purchase, distinct from the admitted FHA documentation and reporting failures.

Enterprise delivery exchanges a loan for cash or a security and carries the seller’s representations about that loan. Fannie Mae’s whole-loan funding process connects purchase proceeds to custodial certification and clean delivery data. Someone who knows the delivery file, purchase records or seller’s response to a defect may therefore see a different part of the transaction from the person who handled FHA insurance claims.

How Did PHH’s Settlement and Whistleblower Share Break Down?

The FHA agreement called for $65 million, while the other agreement assigned $9,453,802 to VA and enterprise claims together. The former employee’s shares followed different payment allocations within those agreements.

Within the FHA amount, the agreement allocated $45,500,000 to PHH Mortgage and $19,500,000 to PHH Home Loans. The employee’s agreed FHA share of about $7.5 million attached to PHH Mortgage’s allocation. The combined VA and enterprise component carried an agreed share of about $1.6 million.

The Justice Department announced that the former employee would receive a whistleblower reward of about $9.1 million from the settlements. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work from the conduct and payment you can explain to identify the recovery your information could support.

Is an Enterprise Repurchase a False Claims Act Case?

A False Claims Act case involving an enterprise repurchase turns on the lender’s knowledge and the connection to government money. Fannie Mae’s selling warranties generally make the lender responsible for loan information whether or not the lender knew it was wrong. PHH’s settlement concerned allegations that it knowingly originated and sold loans that failed the enterprises’ requirements.

The Ninth Circuit’s enterprise-loan decision left open False Claims Act cases involving qualifying requests to recipients of government money. For another lender’s loans, we examine that connection with the insider who knows what went into the delivery and what the purchaser received.

The Decisions Behind PHH’s Certifications

PHH’s FHA admissions connect the underwriting file, internal review, reporting decision and eventual insurance loss. For an underwriter or reviewer, connecting a loan defect to a government claim means understanding what the company accepted as true when it approved the mortgage. The missing payoff evidence, the debt omitted from the calculation and the certification belong to the same account of how that loan qualified.

In its settlement announcement for Guaranteed Rate, the Justice Department described that lender’s admissions about commissions and gifts to FHA underwriters, instructions not to review relevant documents, and failures to report defects. Guaranteed Rate’s admissions put incentives and instructions beside the file; PHH’s put missing support and unreported loans beside it.

Those are decisions people inside lending can recognize. An underwriter may know why a condition was cleared, a reviewer may know who received a finding, and a claims employee may know which loan later produced an insurance payment. We connect those views to the representations and government money behind the case.

You Know Why the Loan Was Approved

If you saw a loan certified despite missing support, or a defect review that never reached the agency, talk with our whistleblower experts about the approval you can explain. We build the case around your knowledge of the lender’s decisions and bring in mortgage fraud whistleblower lawyers who understand underwriting, insurance claims and enterprise sales. We stay with you as that inside account becomes a case for recovering public money.