Fifth Third Bancorp has agreed to a nearly $85 million settlement in a civil fraud case brought against it regarding its mortgage loan practices. The case involves 1,400 mortgage loans between 2003 and 2013 that Fifth Third certified as eligible for insurance from the Federal Housing Administration which were later determined to be “materially defective”. Because of this “defect” the loans were never eligible for FHA insurance and were never reported to HUD, resulting in millions of dollars in losses to HUD. Banks are required to self-report to HUD any deficiencies in loans within 60 days of the time they learn of problems, something Fifth Third allegedly failed to do.
Fifth Third agreed to pay $84.9 million to cover the losses on about 500 loans that defaulted. But that may not be the final price tag, as it also agreed to cover any HUD losses on another 920 loans that haven’t defaulted yet. A whistle blower complaint brought the case to federal authorities’ attention in June 2011. Fifth Third changed its loan practices and fired employees involved in those loan approvals.
“[Fifth Third] admitted and accepted responsibility for failing to self-report mortgage loans it knew to be defective, contrary to HUD requirements,” Preet Bharara, the U.S. Attorney for the Southern District of New York, said in a statement. “[Fifth Third] has also reformed its business practices and terminated the employment of responsible employees.”
