June 27, 1996 First Union Mortgage Corporation
A Raleigh, North Carolina, lender has agreed to pay $7 Million Dollars to settle allegations that it falsely certified the eligibility of borrowers for federally-insured mortgages who subsequently defaulted on their loans, resulting in a $4.3 Million Dollar loss for the Department of Housing and Urban Development (HUD). Under its Single Family Mortgage Insurance Program, HUD insures lenders against losses on mortgage loans to qualified borrowers. HUD regulations require borrowers to make a minimum down payment from their funds as an incentive to make mortgage payments. The suit alleged that First Union misrepresented to HUD that borrowers on 43 St. Louis-area properties had made the required down payment, when in fact, they had not.
The borrowers appeared to make down payments in the form of cash or promissory notes, but those were merely shams because the seller immediately canceled or refunded the down payments at closing.
See U.S. Dept of Justice Press Release 6/27/96