Joining some of the major regional banks, BB&T CorporationBBT announced the resolution of certain legacy mortgage related matters with the U.S. Department of Justice (DOJ). The company has agreed to pay $83 million to settle allegations of violating the False Claims Act.
BB&T has been accused of "originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements." The bank, while fully cooperating with the regulatory agencies, did not admit any "liability to avoid the cost and uncertainty of potential litigation."
Some of the major banks which resolved similar issues earlier this year include Wells Fargo & Company WFC , M&T Bank Corporation MTB and Regions Financial Corporation RF . These banks paid fines in the range of $52 million to $1.2 billion to settle allegations of violating the False Claims Act.
No Financial Impact
The settlement deal will have no material impact on BB&T's results, as it had maintained reserves totaling $85 million for this matter. Further, the company is seeking to recover nearly $70 million related to this matter. However, the bank has not specified from whom it plans to recover this amount.
The DOJ alleged that BB&T failed to adhere to "certain FHA origination, underwriting and quality control requirements." During 2006-2014, the bank falsely certified about complying these rules.
Per the DOJ, between 2006 and 2009, BB&T more than doubled its loan origination volume, while there was a six-fold rise in the FHA insured loans. Further, this was accompanied by a large number of loans being rated 'Serious-Marketability' by the bank's quality control department. This rating leads the loan to be unentitled for FHA insurance.
Notably, for the five years starting 2007, the percentage of loans underwritten by the bank, rated 'Serious-Marketability' by its quality control department, exceeded 30% each year. Nevertheless, BB&T recommended these loans for FHA insurance and even sought payment for insured loans in case of default.
Additionally, BB&T's quality control process did not fulfill FHA requirements. While the loan volume doubled, the number of employees in the quality control department remained the same. Despite requesting for more employees in 2009, the same was not done before 2013. This undermined the number of loans being reviewed per the HUD's loan review sampling rules.
All these led to significant losses of the HUD as it had to pay on insurance claims of defaulted loans.
The U.S. Attorney, John Horn, of the Northern District of Georgia said, "While profiting from the FHA program, BB&T exposed the taxpayers to losses by failing to comply with HUD guidelines, and then took the additional step of falsely certifying that it had complied with such guidelines. This settlement recovers substantial losses caused by BB&T's decision to place its own profits above its commitment to adhere to HUD underwriting and quality control requirements."
The settlement of this case relieves BB&T of the legacy issues in the long run.
We remain encouraged by the efforts of this Wall Street Banking giant in gradually resolving its legal overhangs. Further, Principal Deputy Assistant Attorney General, Benjamin C. Mizer, head of the Justice Department's Civil Division said, "Lenders like BB&T that participate in the FHA program must make adherence to the FHA program rules a priority. The Department has and will continue to hold accountable those lenders that prioritize profits over program compliance."
BB&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report