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Chicago Area Lender Sued by U.S. for Reaping the Benefits of FHA Insurance

NationalMortgageProfessional.com
Jul 29, 2011

The Justice Department has announced that the United States has filed a civil lawsuit against Robert S. Luce, founder and president of MDR Mortgage Corporation, a mortgage lending business located in Palatine, Ill. MDR participated in mortgage insurance (MI) programs administered by the U.S. Department of Housing & Urban Development’s (HUD) Federal Housing Administration (FHA). The United States’ complaint seeks recovery under the False Claims Act and civil penalties under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). According to the complaint, Luce was indicted on April 7, 2005, for mail fraud, wire fraud, obstruction of justice and making false statements. Between April 2005-October 2008, Luce represented to HUD, and caused MDR employees to represent to HUD, that he was not under criminal investigation or indictment. These statements were false at the time they were made, and Luce knew they were false at the time he or other MDR employees made them. Because Luce was under indictment, MDR was not entitled to originate mortgage loans under FHA requirements. Yet, MDR originated more than 90 FHA-insured loans that later defaulted. HUD was required to pay more than $1.6 million in insurance claims to holders of the defaulted mortgage notes, as well as costs and expenses on these loans. MDR is no longer participating in the HUD insurance programs. “The FHA is intended to help families achieve the dream of home ownership,” said Tony West, Assistant Attorney General of the Justice Department’s Civil Division. “Mortgage lenders who lie in order to reap the benefits of these insurance programs, as is alleged here, undermine the integrity of these programs and misuse taxpayer funds that are meant to support single family housing.” Approved HUD-FHA lenders, such as MDR, have the authority to originate FHA-insured mortgage loans, which then are often resold to another lender. If the homeowner defaults on the loan and the lender forecloses, the lender may submit a claim under which HUD will pay the balance of the loan, related interest and other costs, and assume ownership and possession of the property.
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