RBC pays $11 mln to settle US mortgage fraud probe

By Jonathan Stempel

NEW YORK (Reuters) - A Royal Bank of Canada (RY.TO) mortgage unit will pay $10.98 million to settle charges it gave the U.S. government false information about borrowers who took out 219 home loans that ended up in foreclosure.

RBC Mortgage Co agreed to the payment to avoid litigation but denied wrongdoing, according to Patrick Fitzgerald, the U.S. attorney in Chicago, who announced the settlement.

Investigators accused RBC of knowing that 219 loans made in the Rockford and Freeport, Illinois, areas between February 2001 and April 2004 were based on false or fraudulent statements about the borrowers' credit, employment or sources of equity.

They said the lender also submitted false information about the loans to the U.S. Department of Housing and Urban Development.

"Mortgage lenders should know that they must maintain the integrity of the lending process so that federally insured mortgages will be available to worthy borrowers and not based on fraud and deceit," Fitzgerald said in a statement.

RBC spokesman Kevin Foster said the lender has cooperated fully, and takes any allegation of employee misconduct very seriously. He also said RBC sold the unit where the alleged misconduct took place in 2005.

The civil case is related to a separate federal criminal probe that resulted in the convictions of 25 defendants, including three RBC Mortgage officers, Fitzgerald said.

Tuesday's settlement includes payments of about $10.7 million to cover the charges, and $264,000 for other claims stemming from a HUD audit of loans that RBC was accused of improperly certifying as current.

(Reporting by Jonathan Stempel, editing by Matthew Lewis, Richard Chang)