FOR IMMEDIATE RELEASE                                         CIV
THURSDAY, JUNE 27, 1996                            (202) 616-2765
                                               TDD (202) 514-1888

                                 
  LENDER PAYS $7 MILLION TO SETTLE FEDERALLY-INSURED LOAN CLAIM

     WASHINGTON, D.C. -- A Raleigh, North Carolina, lender has
agreed to pay the United States $7 million to settle allegations
it falsely certified the eligibility of borrowers for federally-
insured mortgages who subsequently defaulted on their loans,
resulting in a $4.3 million loss for the Department of Housing
and Urban Development, the Department of Justice and the U.S.
Attorney's office in St. Louis, Missouri, announced today.  
     The payment by First Union Mortgage Corporation is the
largest ever obtained in a case brought under the False Claims
Act involving HUD's Single Family Mortgage Insurance Program,
said Assistant Attorney General Frank W. Hunger of the Civil
Division.  Under the program, HUD insures lenders against losses
on mortgage loans to qualified borrowers.  
     The payment settles a 1994 lawsuit brought by the government
against First Union Mortgage, a subsidiary of First Union
Corporation of Charlotte, North Carolina.
     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, then named Cameron-
Brown Mortgage Company, 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, Richard Powelson of Kansas City, immediately canceled or
refunded the down payments at the closings, the suit alleged. 
     The lawsuit also alleged that many of the borrowers were
"straw buyers" who merely qualified for the loans on behalf of
Powelson and then "flipped" back the properties to Powelson after
the closing.  HUD regulations prohibited Powelson from obtaining
the mortgage insurance on his own.  Therefore, Powelson paid
these individuals $2,000 to qualify for the loans on his behalf,
the suit alleged.
     According to the suit, the false representations induced HUD
to mistakenly insure ineligible mortgage loans.  Each of the 43
loans, which originated in 1984 and 1985, went into default,
resulting in a $4.3 million loss to HUD after payment of its
insurance obligations. 
     The suit alleged that First Union employees solicited
investors for these properties and assured them that the
transactions complied with HUD regulations.  According to the
suit, most of the buyers were novice real estate investors culled
from "no money down" real estate seminars given by Powelson. 
     As part of the settlement, HUD agreed not to debar or
suspend First Union from further participation in HUD mortgage
insurance programs.  Previously, HUD debarred Powelson and
sanctioned five others involved in the transactions, including
two First Union employees.  
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