(Adds background about PHH’s legal fight with the CFPB and details about a whistleblower’s involvement in the matter)
By Nate Raymond
Aug 8 (Reuters) - Mortgage company PHH Corp will pay nearly $74.5 million to resolve claims it generated defective loans that the federal government then insured and Fannie Mae and Freddie Mac bought, The U.S. Justice Department said on Tuesday.
The deal with Mount Laurel, New Jersey-based PHH follows settlements between the Justice Department and financial companies over shoddy mortgage loans in recent years in the wake of the 2007-2009 financial crisis.
“This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government,” Gregory Brooker, the acting U.S. attorney in Minnesota, said in a statement.
The deal also involved the company’s PHH Home Loans, which operates in Edina, Minnesota.
PHH, in a statement, said it cooperated fully in the investigations that led to the settlement agreements since first receiving subpoenas in 2013. It said it had agreed to resolve the probes without admitting liability.
“Adhering to high legal, regulatory and ethical standards is at the core of how we conduct business, and we remain committed to serving our customers and all of our stakeholders consistent with that principle,” PHH said.
PHH recently won legal victories in its challenge of the constitutionality of the U.S. Consumer Financial Protection Bureau (CFPB), after the regulator fined the company over alleged illegal kickbacks.
PHH argued that the bureau’s director, Richard Cordray, has more power than the Constitution allows. The Justice Department sided with PHH against the CFPB in oral arguments before an 11-judge federal appellate court.
But in Tuesday’s case, the Justice Department took PHH to task for failing to comply with certain origination, underwriting and quality control requirements of the U.S. Federal Housing Administration, the U.S. Veterans Affairs Department, Fannie Mae and Freddie Mac.
The Justice Department said that from 2006 to 2011, PHH certified ineligible home loans for FHA insurance. The government later incurred substantial losses when it paid insurance claims on those mortgages, the department said.
PHH also submitted ineligible loans to be guaranteed for coverage through a Veterans Affairs Department program that helps members of the military and veterans become homeowners, the Justice Department said.
It also originated and sold ineligible loans to mortgage giants Fannie Mae and Freddie Mac, which the government seized in 2008 and then put into a conservatorship under the Federal Housing Finance Agency, the Justice Department said.
Some of the allegations in Tuesday’s case arose from a whistleblower lawsuit filed by Mary Bozzelli, a former PHH employee. She will receive $9.1 million from the settlements, the Justice Department said. (Reporting by Nate Raymond in Boston; Additional reporting by Sarah N. Lynch in Washington, D.C.; Editing by Dan Grebler and Leslie Adler)