By Leslie Scism And Joe Light
A MetLife Inc. unit agreed to pay $123.5 million to resolve
allegations it knowingly made mortgages insured by the U.S.
government that didn't meet federal underwriting requirements.
The pact between MetLife Home Loans LLC and the Justice
Department is the latest in a string of mortgage-related
settlements as authorities continue to pursue financial
institutions for their behavior during the last U.S. housing
boom.
The MetLife settlement announced Wednesday involved loans
insured by the U.S. Department of Housing and Urban Development's
Federal Housing Administration. The FHA doesn't make mortgages but
sells insurance to cover investor losses if a borrower
defaults.
MetLife admitted as part of the settlement that its banking
subsidiary had been aware that a substantial percentage of loans
weren't eligible for FHA mortgage insurance due to its own internal
quality-control findings. These quality-control findings were
routinely shared with MetLife Bank's senior managers, including the
chief executive officer and board of directors, the Justice
Department said.
"MetLife Bank took advantage of the FHA insurance program by
knowingly turning a blind eye to mortgage loans that did not meet
basic underwriting requirements, and stuck the FHA and taxpayers
with the bill when those mortgages defaulted," U.S. Attorney John
Walsh, who assisted with the investigation, said in a
statement.
MetLife no longer owns the banking subsidiary that made the
loans. A spokesman said "we fully cooperated with the DOJ's
investigation" and "are pleased to put this matter behind us."
The Justice Department has said lenders submitted thousands of
loans for insurance during the housing boom that had mistakes or
should not have been eligible. Bank of America Corp., J.P. Morgan
Chase & Co. and several other lenders have reached settlements
to make up for losses incurred when the loans defaulted.
Wells Fargo & Co., the fourth-largest U.S. bank by assets,
hasn't been able to reach a settlement over a U.S. lawsuit alleging
it improperly certified some FHA mortgage loans. The bank disclosed
Wednesday in a securities filing that it remains unresolved.
Several banks that paid the highest penalties have pulled back
sharply from making loans under the program, complicating the Obama
administration's efforts to make mortgages more available for
borrowers served by the FHA.
In the past few months, HUD officials have worked to clarify
rules and penalties that lenders face when making mistakes on
FHA-backed loans. HUD and Justice Department officials have also
discussed modifying the terms of making an FHA loan that expose
banks to the most stringent penalties.
Write to Leslie Scism at leslie.scism@wsj.com and Joe Light at
joe.light@wsj.com
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