Regions Financial in Birmingham, Ala., has agreed to pay $52.4 million to settle allegations that it violated the False Claims Act by originating and underwriting mortgages that did not meet Federal Housing Administration requirements.
Ultimately, though, Regions will not be footing most of the bill on its own. The bank noted Tuesday in a filing with the Securities and Exchange Commission that its insurers agreed to reimburse the bank roughly $47 million of the settlement amount.
Regions had already reserved the entire settlement amount as of the end of the second quarter, and the recovery through insurance is expected to come in the third quarter.
As part of the settlement, Regions acknowledged it certified certain mortgages for FHA insurance that did not meet Department of Housing and Urban Development underwriting requirements between 2006 and 2011.
Because of Regions' actions, "HUD insured hundreds of loans approved by Regions … that HUD would not otherwise have insured," the Department of Justice said in a news release. This led to HUD's incurring losses when it paid insurance claims on the loans. Regions did not admit liability in the matter.
HUD also alleges that Regions did not maintain a fully compliant quality control program. The bank's quality control department supposedly did not review an adequate amount of FHA-insured loans on a regular basis, and HUD was found to have cured quality control findings with documents that were unavailable to the underwriter when the loan received approval. This led to an understated defect rate being reported to senior management.
Additionally, HUD claims that Regions did not fully adhere with self-reporting requirements, as the bank did not begin self-reporting potential fraud or other violations on loans until 2011.
Regions is one of many bank and nonbank lenders and servicers to have settled allegations under the False Claims Act in the past year. Most notably, Wells Fargo, which recently fell under regulatory scrutiny for opening unauthorized accounts,
