* Golden First said to defraud federal agency into insuring
* Default rate said to top 60 percent since 2002 - civil
By Jonathan Stempel
April 4 The United States on Thursday sued a New
York mortgage company it said defrauded the federal government
into insuring poor quality home loans, costing taxpayers
millions of dollars.
In a civil lawsuit filed in Manhattan federal court, the
U.S. Department of Justice said Golden First Mortgage Corp and
its president David Movtady "repeatedly lied" to the government
between 2002 and 2010 to win Federal Housing Administration
insurance for its home loans.
The lawsuit seeks compensatory damages, triple damages and
fines for Golden First, which operated in Great Neck on New
York's Long Island.
Samuel Rosenberg, a lawyer for the defendants, declined to
The case is part of the government's effort to crack down on
lenders it believes contributed to the U.S. housing crisis by
issuing risky home loans.
Last year, Bank of America Corp, Citigroup Inc
and Deutsche Bank AG agreed to pay a respective $1
billion, $158.3 million and $202.3 million to resolve similar
Wells Fargo & Co, the largest U.S. mortgage lender,
is seeking to dismiss a similar lawsuit.
In its complaint against Golden First, the government said
the company submitted repeated false certifications that its
loans had undergone proper due diligence, and complied with
rules of the U.S. Department of Housing and Urban Development,
of which the FHA is a part.
Instead, the government said Golden First emphasized speed
and volume over quality, paid kickbacks to employees to speed up
loan approvals, and used just three people to close 100 to 200
loans a month, making adequate due diligence impossible.
The government said this led to an "extraordinarily high"
default rate topping 60 percent on the $707 million of loans
made since 2002. It said all 26 Golden First loans in a sampling
from 2007 and 2008 had material underwriting violations.
"Golden First and David Movtady churned out bad loans and
lied about their compliance with HUD requirements, leaving
taxpayers on the hook for millions of dollars when the loans
inevitably defaulted," U.S. Attorney Preet Bharara in Manhattan
said in a statement.
The Justice Department said the FHA has paid more than $12.3
million in insurance claims on Golden First loans since July
2007, and expects the amount to rise.
Under the Direct Endorsement Lender program in which Golden
First participated between 1989 and 2010, neither HUD nor the
FHA reviews home loans before they win approval for insurance,
but lenders are supposed to follow the program's rules.
The government accused Golden First of violating the federal
False Claims Act and the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA) of 1989, and also of
committing negligence and breach of fiduciary duty.
FIRREA was passed in the wake of the 1980s savings and loan
crisis. Federal investigators have used it more often in
financial cases recently, in part because of its 10-year statute
of limitations and the ability to seek higher damages.
The case is U.S. v. Golden First Mortgage Corp et al, U.S.
District Court, Southern District of New York, No. 13-02227.