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Finance of America Agrees to $14.5M Fine

 Finance of America Mortgage LLC has agreed to pay the United States government $14.5 million to settle a False Claims Act lawsuit involving mortgage fraud. The lawsuit relates to Federal Housing Administration loans originated by Gateway Funding Diversified Mortgage Services, which Finance of America acquired in 2015.

[caption id="attachment_8407" align="alignleft" width="288"] Gateway focused on its own financial interests and ignored its quality-control findings.[/caption]

The settlement resulted from a lawsuit filed under the whistleblower provisions of the False Claims Act by Debra McGeehan, a former quality control underwriter at Gateway. She worked for the lender periodically between 2009 to 2015. 

"It is extremely frustrating when a mortgage company identifies issues with loans as part of its quality-control process, but then deliberately ignores those findings," said McGeehan. "Gateway was only interested in its own financial interests and was willing to ignore its own quality control findings in order to defraud the FHA program."

Under the guidelines of the program, HUD insures FHA loans that meet its requirements, which can therefore be lucrative for lenders who can seek compensation from HUD for any loss sustained when a borrower defaults on a loan. However, HUD's requirements require that lenders self-report loans that lenders determine have underwriting errors.

According to the settlement agreement, Gateway did not maintain a proper quality control program as required by HUD for participation in the FHA program. Gateway's loans had a high default rate, which members of the management team pointed out, but the company didn’t take steps to ensure compliance with self-reporting requirements.

For example, in a February 2014 email, Gateway's senior vice president of compliance and credit risk sent an email to Gateway's executive team, noting that there were specific underwriters and branch offices "who show a pattern of poor performance."

While Gateway identified loans during the quality-control process that had material underwriting errors, Gateway did not routinely report those errors to HUD, as required. As a result, HUD incurred substantial losses when those loans suffered defaults and insurance payments were subsequently paid to Gateway.

As part of the settlement, the U.S. government awarded McGeehan more than $2.3 million for the role she played in helping to resolve the case. Under the False Claims Act, individuals who identify fraud might be entitled to an award for alerting the government to it.

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Lenders’ Pessimism Hits New Low

Lenders pessimistic about their ability to generate profits has fallen to an all-time low.

According to Fannie Mae’s Q4 2018 Mortgage Lender Sentiment Survey, the outlook for profit among lenders established a low across all loan types--GSE-eligible, non-GSE-eligible, and government. The survey polls senior executives of its lending institution customers on a quarterly basis to assess their views and outlook across varied dimensions of the mortgage market. It was conducted between October 31 and November 12.

The profit outlook for mortgage lenders fell for the ninth consecutive quarter in the final three months of 2018 due to a decline in demand for loans to buy homes and refinance existing mortgages, a quarterly survey of mortgage lenders found.

"Competition from other lenders" was cited by survey participants as the top reason for their pessimism for the eighth consecutive quarter. For purchase mortgage demand, across all loan types the net shares of lenders reporting growth for the prior quarter reached the lowest reading for any fourth quarter in the survey's history, while the prior quarter's demand growth for GSE-eligible refinance mortgages was the second lowest in the survey. Lenders also reported downbeat mortgage demand growth expectations.

"Stressful conditions continue to hang over the mortgage industry. Lenders are reporting the lowest purchase mortgage demand expectations across all loans types and the worst refinance demand expectations for GSE-eligible loans in the survey's five-year history," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Rising mortgage rates and lean inventory amid solid home price appreciation have discouraged both first-time and trade-up homebuyers. However, mortgage rates have shown signs of stabilization, and annual home price gains have slowed from the red-hot pace seen earlier this year.”

Some additional highlights from the survey are as follows:

Easing of Credit Standards:

  • Lenders on net continued easing lending standards at a modest pace since the start of the year. However, the pace was significantly lower than the pace seen a year ago (Q4 2017).
  • The net easing expectations over the next three months for all three loan types remained relatively stable from last quarter and last year.

 Profit Margin

  • Lenders’ net profit margin outlook remained negative for the ninth consecutive quarter and reached a new survey low since 2014.
  • “Competition from other lenders” was cited as the top reason for lenders’ decreased profit margin outlook for the eighth consecutive quarter.
  • “Consumer demand” was cited as the second most important reason for the decreased profit margin outlook, reaching a survey high.
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Texas Capital Launches Digital Mortgage Program

Texas Capital Bank has launched their eMortgages program, becoming one of the first banks in the U.S. to fully support digital mortgages. By providing financing for eMortgages, Texas Capital Bank aims to solve the liquidity issue for lenders, and bridge the financial gap required to help eMortgages take off.

"The team is proud to be at the forefront of the evolution of the mortgage industry," said Vince Ackerson, chief lending officer and president at Texas Capital Bank. "We recognize that the future is digital, so we strive to pave the way for our client's success by adopting new technologies early in their lifecycle. We are excited to be a part of this change."

Fully digital mortgages, or eMortgages, supply borrowers with a quick and convenient way to secure a mortgage by removing all paperwork from the process. These mortgages are evidenced by a promissory note that exists in electronic format, or eNote.

"In the long term, eMortgages hold the promise to help lenders gain operational efficiencies, realize cost savings and experience increased borrower satisfaction," said Jack Nunnery, president of mortgage finance. "Having a knowledgeable counterparty that can help remove some of the uncertainty can be essential to a mortgage lender's success as they embark on their own digital transformation."

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