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Fifth Third to Pay $85 Million to Settle Claims of Fraud on FHA-Insured Loans

money-stepsFifth Third Bancorp has agreed to pay nearly $85 million to resolve civil fraud claims regarding approximately 1,400 loans originated by the bank that were insured by the FHA, according to an announcement from U.S. Attorney for the Southern District of New York Preet Bharara and Special Inspector General for the Troubled Asset Relief Program Christy Goldsmith Romero.

According to the announcement, Fifth Third made a voluntary disclosure of approximately 1,400 loans from 2003 to 2013 that the bank had certified as eligible for FHA insurance that were later found to contain material defects that would have made those loans ineligible for FHA insurance. The defects in the loans were never self-reported to HUD, which later resulted in millions of dollars in losses to the Department.

Fifth Third, which received a $3.4 billion bailout from TARP in 2008, admitted that it violated HUD requirements by failing to report to HUD loans the bank knew were defective. Fifth Third agreed to pay $85 million to cover HUD's losses on approximately 500 of the loans that defaulted on which HUD paid insurance claims and indemnify HUD on any losses the Department may incur for the remaining approximately 900 loans that have not defaulted yet, according to the announcement.

"The bank’s false representations cost HUD millions of dollars to pay insurance claims on 519 of the materially defective loans that later defaulted."

Also as part of the settlement, the Fifth Third employees responsible for Fifth Third's failure to self-report the defective loans have been terminated and the bank has reformed its business practices.

"Before and during the time Fifth Third was bailed out in TARP, its Quality Control employees made false representations to HUD that residential mortgages the bank originated were of the quality required to be insured by HUD," Romero said. “The bank’s false representations cost HUD millions of dollars to pay insurance claims on 519 of the materially defective loans that later defaulted. Fifth Third’s actions to fire those employees, voluntarily disclose its violations of the False Claims Act and FIRREA to law enforcement, and make corporate changes should stand as an example for others who violated the law."

Fifth Third said that it was "pleased to have concluded this agreement with the government, covering loans dating to the financial crisis. We are excited about the future of our mortgage business."

The issue of the defective loans arose in part from a whistleblower complaint filed by the False Claims Act, although Fifth Third made a voluntary disclosure to the government regarding the defective loans in 2012 without knowledge of the whistleblower complaint, according to the announcement.

For more on the settlement, click here.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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