Manhattan U.S. Attorney Settles Civil Mortgage Fraud Lawsuit Against Golden First Mortgage Corp. And Its Owner, David Movtady

Defendants Admit to and Accept Responsibility for Submitting False Loan Certifications to HUD-FHA

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has settled a civil mortgage fraud lawsuit against GOLDEN FIRST MORTGAGE CORP. (“GOLDEN FIRST”), and its owner, operator and President, DAVID MOVTADY (“MOVTADY”). The Government’s complaint, filed in April 2013, and amended in August 2013 (the “Amended Complaint”), sought damages and civil penalties under the False Claims Act for years of misconduct in connection with GOLDEN FIRST’s participation in the Federal Housing Administration’s (“FHA’s”) Direct Endorsement Lender Program. In the settlement approved today in Manhattan federal court by U.S. District Judge Jesse Furman, MOVTADY and GOLDEN FIRST admitted, acknowledged, and accepted responsibility for conduct alleged in the Amended Complaint, specifically that they failed to maintain a compliant quality control program and therefore did not conform to all U.S. Department of Housing and Urban Development (“HUD”) and FHA regulations applicable to the Direct Endorsement Lender Program. This conduct was contrary to the representations in GOLDEN FIRST’S annual certification, including the annual certification signed by MOVTADY on September 15, 2008. The defendants also agreed to a $36 million judgment against GOLDEN FIRST and a $300,000 payment from MOVTADY. Finally, the settlement permanently bars MOVTADY from conducting any business with the federal government.

Manhattan U.S. Attorney Preet Bharara said: “This settlement holds Golden First and its owner, David Movtady, accountable for lying to the Government about compliance with HUD requirements and approving bad loans. This type of conduct costs the United States millions of dollars when the loans inevitably default, and this Office is committed to snuffing it out.”

According to the allegations contained in the Complaint, the Amended Complaint, and other public court filings:

GOLDEN FIRST was a participant in the Direct Endorsement Lender program – a federal program administered by FHA – from 1989 until 2010. MOVTADY was the owner, president and operator of GOLDEN FIRST from 1979 until 2010. As a Direct Endorsement Lender, GOLDEN FIRST had the authority to originate, underwrite, and certify mortgages for FHA insurance. If a Direct Endorsement Lender approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD for the costs associated with the defaulted loan, which HUD must then pay. Under the Direct Endorsement Lender program, HUD relies on lenders to properly review, underwrite, and certify loans before they are endorsed for FHA insurance. Direct Endorsement Lenders are therefore required to follow HUD’s program rules, including certifying mortgages and maintaining a quality control program that can prevent and correct any deficiencies in their underwriting. The quality control program requirements include maintaining a program independent of the lender’s business units; disclosing to HUD, within 60 days of initial discovery, all loans containing evidence of fraud or other serious underwriting problems; and conducting a full review of all loans that go into default within the first six payments (“early payment defaults”). GOLDEN FIRST and MOVTADY failed to comply with all three of these basic requirements. Notwithstanding these failures, MOVTADY fraudulently certified that GOLDEN FIRST “conforms to all HUD-FHA regulations necessary to maintain its HUD-FHA approval.”

GOLDEN FIRST and MOVTADY also engaged in a regular practice of originating and underwriting FHA loans that GOLDEN FIRST and MOVTADY knew should have never been approved. Nonetheless, GOLDEN FIRST certified that more than a thousand FHA loans met HUD’s requirements and therefore were eligible for FHA insurance.

Pursuant to the settlement, the United States will obtain a $36 million judgment against GOLDEN FIRST and recover $300,000 from MOVTADY, individually, within six months of the settlement. MOVTADY will also be permanently barred from conducting any business with the federal government. As part of the settlement, the defendants admitted, acknowledged, and accepted responsibility for the following misconduct:

• GOLDEN FIRST failed to conform fully to HUD-FHA rules requiring Direct Endorsement Lenders to maintain a compliant quality control program;
• Contrary to representations in GOLDEN FIRST’S annual certifications, including an annual certification signed by MOVTADY on September 15, 2008, GOLDEN FIRST did not conform to all applicable HUD-FHA regulations;
• GOLDEN FIRST endorsed certain loans for FHA mortgage insurance that did not meet all underwriting requirements contained in HUD’s handbooks and mortgagee letters, and therefore were not eligible for FHA mortgage insurance under the DEL program; and
• GOLDEN FIRST submitted to HUD-FHA certifications stating that certain loans were eligible for FHA mortgage insurance when in fact they were not; FHA insured certain loans endorsed by GOLDEN FIRST that were not eligible for FHA mortgage insurance; and HUD consequently incurred losses when some of those loans defaulted.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

Mr. Bharara thanked HUD’s Office of the Inspector General for its assistance in this case.

This case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Lara K. Eshkenazi and Lawrence H. Fogelman are in charge of the case.