The U.S. Department of Justice (DOJ) announced this week that it has secured a $2.4 million settlement from James B. Nutter & Co., aka Nutter Home Loans, to resolve allegations that the lender had underwritten ineligible reverse mortgages to be insured by the Federal Housing Administration (FHA).
The lender “has agreed to pay $2.4 million to resolve allegations that it violated the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 by knowingly underwriting [HECMs] insured by the U.S. Department of Housing and Urban Development (HUD)’s [FHA] that did not meet program eligibility requirements,” the announcement explained.
The head of the DOJ’s civil division, Brian M. Boynton, said the settlement will help to protect “the financial integrity of this critical program (HECM) and to pursuing those who seek to abuse it.”
The HECM program maintains its own book inside the Mutual Mortgage Insurance (MMI) Fund so that in the event of a loan default, the lender can recover “certain losses” from the U.S. government. Lenders must ensure that the loans they take on are eligible for government insurance.
The DOJ alleged in 2020 that Nutter — a lender that is now out of business but which at one point was a reverse mortgage and HECM program pioneer — “knowingly violated FHA underwriting requirements when it allowed inexperienced temporary staff to underwrite FHA-insured loans, and submitted loans for FHA insurance with underwriter signatures that were falsified and/or affixed before all the documentation the underwriter should have reviewed was complete.”
Nutter consistently maintained its innocence throughout the legal proceedings, according to attorneys representing the company who previously spoke with HousingWire‘s Reverse Mortgage Daily (RMD).
“This case sought to redress serious violations of FHA requirements that posed a risk to the HECM program,” said Damon Smith, general counsel for HUD. “HUD will continue to protect the integrity of this important mortgage program that serves the interests of our nation’s senior citizens.”
HUD Inspector General Rae Oliver Davis added that the settlement is indicative of her office’s dedication to maintaining the integrity of HUD programs, including HECM.
“No one is above the law,” she said. “Our office will continue to work with our partners at the Justice Department to investigate mortgage lenders who jeopardize the integrity of FHA mortgage programs.”
The investigation leading to the litigation — and ultimately, the settlement — was a collaboration between the commercial litigation branch of the DOJ Civil Division, the U.S. attorneys’ offices for the Western District of Missouri and the District of Columbia, HUD and Oliver Davis’ office.
“The claims resolved by the settlement are allegations only,” DOJ specified. “There has been no determination of liability.”
Prior to the announcement of the settlement, there was a development in July that defense attorneys representing the defunct lender characterized as a “win.” The legal defense team secured a partial summary judgment in the case, which kept the DOJ from recovering damages under the False Claims Act (FCA). The court said the DOJ failed to establish causation evidence, which limits the recovery to civil damages only.
“The main takeaway from our side is that the court significantly narrowed the scope of damages and penalties that the government can seek in this case,” Nutter defense attorney Edward T. Kang told RMD in July.
The court, Kang said, ruled that the government cannot recover any damages under the FCA, so treble damages sought by DOJ are off the table. The court also narrowed the number of loans for which the DOJ could seek penalties, reducing it from 1,571 to 569.
RMD reached out to Kang and his law firm for comment on the development but did not receive an immediate response.
Nutter Home Loans is considered a pioneer in the reverse mortgage industry due to its quick adoption of the HECM program, which began following the passage of the Housing and Community Development Act of 1987. In 1989, the first FHA-insured HECM was issued to Marjorie Mason of Fairway, Kansas, by James B. Nutter & Co.
In its heyday, Nutter serviced about $7 billion a year in mortgages, but that figure had declined to just over $100 million in 2022 up until its closure. By then, just a small percentage of the firm’s originations were tied to reverse mortgages.
