United Shore to pay feds $48M for bad FHA mortgages

Dec. 29--Troy-based mortgage business United Shore Financial Services has agreed to a $48 million settlement with the U.S. Department of Justice over claims that it failed to properly underwrite federally insured, low-down-payment mortgages.

The Justice Department said that from 2006 until 2012, United Shore wrongly certified "hundreds" of Federal Housing Administration mortgages for government approval that, in actuality, failed to meet FHA requirements and later went bad, resulting "in substantial losses of public funds."

This was a violation of the False Claims Act, a Civil War-era law that Justice officials in recent years have used to obtain billions of dollars in settlements from banks and other financial institutions for purported wrongdoing in the lead-up and aftermath of the 2008 financial crisis. Detroit-based Quicken Loans faces similar allegations concerning FHA loans, but has refused a proposed government settlement deal, vowing instead to fight the allegations in court.

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The United Shore settlement says the Troy firm also violated the FHA program's prohibition against paying commissions to underwriters based on the volume or value of mortgages they approve. In addition, United Shore "made certain discretionary contributions" to its shareholders in January 2014, after the Justice Department initiated its investigation into the family-owned firm. Further details of those contributions were unavailable Thursday.

A United Shore representative declined to comment for this story.

"When lenders breach their duty of due diligence and make risky loans that go bad, taxpayers pay the bill," U.S. Attorney Barbara McQuade said in a statement. "By holding accountable lenders who fail to comply with underwriting requirements, we hope to send a message to all lenders that they must comply with government standards for federally insured loans."

United Shore was started in 1986 and became the top-ranked firm in the country last year in the wholesale mortgage-lending business, which is the underwriting of loans made by mortgage brokers, credit unions or banks. That is a different type of mortgage business from the "retail lending" done by banks and nonbank mortgage firms such as Quicken Loans.

United Shore employed nearly 1,500 employees as of this past summer and its President and CEO Mat Ishbia is the son of company founder Jeffrey Ishbia. The firm is the sponsor of the new United Shore Professional Baseball League, an independent league of former collegiate players that debuted this past spring.

The FHA program offers low-down-payment loans backed by the U.S. government and is popular with first-time homebuyers. The program is under the Department of Housing and Urban Development, which insures the loans.

Quicken Loans is currently battling the Justice Department in federal court in Detroit against allegations that it too violated the False Claims Act with respect to FHA mortgages. The nation's largest originator of FHA loans, Quicken Loans denies the allegations and refused a proposed settlement deal with the government that, according to Quicken's founder and Chairman Dan Gilbert, would have involved paying "nine figures," or more than $100 million.

The Justice Department announced this month that through the False Claims Act, it has collected more than $7 billion in settlements and judgments since 2009 related to federally-insured mortgage programs, including a $1.2 billion settlement this year from Wells Fargo that also concerned FHA mortgages. By endorsing ineligible loans for the FHA program, financial institutions increase their mortgage profits "at taxpayer expense while incurring little or no risk of their own," the department said.

In United Shore's case, the Troy firm was a "direct endorsement lender" in the FHA program with the authority to originate, underwrite and endorse mortgages for the FHA insurance.

The settlement agreement says United Shore failed to self-report violations of FHA loan quality and that Shore employees found quality problems in numerous FHA loans in the period before the financial crash, but the firm's quality control manager failed to share and fully explain these deficiencies with senior management.

The U.S. Attorney's office could not provide to the Free Press the specific number of bad loans United Shore was responsible for, or the size of the government's losses on those loans.

Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @JCReindl.

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