New York-Based Lender Settles with U.S. for $36 Million Over Mortgage Fraud Claims

The U.S. has settled a civil mortgage lawsuit against Golden First Mortgage Corp. that accused the mortgage company and its owner, David Movtady, of defrauding a government mortgage program, according to an announcement from U.S. Attorney for the Southern District of New York Preet Bharara.

The Great Neck, New York-based Golden First agreed to pay $36 million to settle a complaint originally filed by the U.S. in April 2013 and amended in August 2013. In the complaint, the U.S. accuses Golden First of violating the False Claims Act through years of misconduct relating to the mortgage company's participation in the Federal Housing Administration (FHA)'s Direct Endorsement Lender Program.

The settlement, approved by U.S. District Judge Jesse Furman, also requires Movtady to pay a $300,000 penalty. As part of the settlement, Golden First and Movtady accepted responsibility for the alleged misconduct in the complaint. The complaint alleges that Golden First did not conform to the all FHA and HUD regulations related to the Direct Endorsement Lender Program by failing to maintain a quality control program, despite a certification signed by Movtady in September 2008 that the company was in compliance with all of the FHA/HUD regulations to maintain FHA/HUD approval. Movtady is permanently barred from doing any business with the federal government as part of the settlement.

"This settlement holds Golden First and its owner, David Movtady, accountable for lying to the government about compliance with HUD requirements and approving bad loans," Bharara said. "This type of conduct costs the United States millions of dollars when the loans inevitably default, and this Office is committed to snuffing it out."

Golden First was a participant in the Direct Endorsement Lender Program from 1989 to 2010, and Movtady served as the owner, operator, and president of Golden First from 1979 to 2010, according to the complaint. Being a Direct Endorsement Lender gave Golden First the authority to originate, underwrite, and certify mortgages for FHA insurance. HUD relies on lenders to properly review, certify, and underwrite loans before they are approved for FHA insurance, since HUD is on the hook for the cost if the loan later defaults.

According to the complaint, Golden First certified that more than 1,000 mortgage loans met HUD's requirements for FHA insurance when in fact they did not. The complaint alleges that Golden First was in violation of three basic requirements of HUD's quality control program: first, maintaining a program independent of the lender's business units; second, disclosing loans with evidence of fraud or serious underwriting problems to HUD within 60 days of initial discovery; and third, the requirement to conduct a full review of a loan that defaults within the first six payments.