Financial Freedom Agrees to Pay Government $89 Million to Settle Allegations that it improperly serviced Federally Insured Reverse Mortgage Loans

Often the government crackdown on fraud and abuse affects some of society’s most vulnerable citizens – the elderly. The fact was demonstrated last month, when the Justice Department announced that Financial Freedom had agreed to a settlement with the United States for more than $89 million. The government alleged that the company – which is headquartered in Austin, Texas – violated the False Claims Act and the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) in connection with its participation in a ‘reverse mortgage’ program. “This settlement represents our office’s continued commitment to protecting the financial solvency of vital financial programs designed to benefit America’s seniors,” said Acting U.S. Attorney Stephen Muldrow of the Middle District of Florida. “HECM servicers must be held accountable for failing to adhere to FHA requirements that are designed to ensure the continued viability of the HECM program. We are pleased that Financial Freedom agreed to accept financial responsibility for these failures.”

Reverse mortgage loans are a financial instrument through which older people are able to access equity in their homes by borrowing against the equity they have built. The government protects – via the FHA – lenders from loss by providing mortgage insurance. Further, the FHA reimburses lenders who are unable to recoup the full amount of the loan. However, the loan servicer must first meet a number of regulatory requirements and deadlines before he/she is reimbursed. The United States alleges that from March 31, 2011 to August 31, 2016, Financial Freedom obtained additional interest on insurance payments that they were not entitled to receive. Financial Freedom allegedly did so by failing to meet appraisal deadlines, falling to submit claims to HUD and by neglecting to pursue foreclosure proceedings.

The investigation into Financial Freedom’s alleged practices arose from a declaration filed pursuant to FIRREA by Sandra Jolley. Jolley is a consultant for the estates of borrowers who took out the HECM loans. Under the FIRREA, whistleblowers may file declarations alleging violations of the statute and share in any subsequent recovery. Ms. Jolley will receive $1.6 million from the settlement.

“Today’s settlement agreement resolves allegations that this lender failed to comply with FHA servicing requirements and sought to receive financial gains that it was not legally entitled to,” said HUD Inspector General David A. Montoya. “These actions today demonstrate our continued commitment to address and halt business practices that pose a serious risk to the FHA program and the public’s trust in HUD administered programs.” If you know of abuse that has been committed against the government or one of its agencies, you are encouraged to report it and to contact a whistleblower law firm. The settlement was the result of the coordinated efforts of several state and federal agencies who have been participating in the government’s involvement in whistleblower Medicare cases.