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Press Release

Former Colorado Mortgage Originator, A Subsidiary Of Lehman Brothers, Agrees To Pay $41 Million Related To Its Conduct In Originating And Selling Mortgage Loans

For Immediate Release
U.S. Attorney's Office, District of Colorado

DENVER – Bob Troyer, the United States Attorney for the District of Colorado, announced today a $41 million settlement with Aurora Loan Services, LLC, a subsidiary of Lehman Brothers Holdings, Inc. (“LBHI”), in connection with Aurora Loan Services’ conduct in originating and selling residential mortgage loans from 2004 through 2008.  Under the resolution announced today, Aurora Loan Services will pay $41 million as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act. 

Aurora Loan Services was a mortgage company headquartered in Littleton, Colorado.  It worked with correspondent lenders, which made mortgage loans to homebuyers.  Aurora Loan Services arranged for the sale of these loans to its parent company, Lehman Brothers Bank. Lehman Brothers Bank sold these loans to its parent, LBHI, a major investment bank.  LBHI used the loans to create residential mortgage-backed securities and sold those securities to investors.        

The United States alleged the following conduct by Aurora Loan Services.  Between 2004 and 2008, Aurora Loan Services represented to potential investors that the loans generally complied with its underwriting standards.  It represented that before the loans were purchased from correspondent lenders, the loans had been scrutinized as part of Aurora Loan Services’ quality control review.   Investors were also told that the loans went through Aurora Loan Services’ “pre-funding fraud detection” review, a review that identified potential “red flags” in loan files. 

In practice, however, Aurora Loan Services knew that these representations were not true for many loans.   Aurora Loan Services gave five large correspondent lenders “Platinum” status.  Aurora Loan Services gave these Platinum lenders better pricing.  Aurora Loan Services also allowed the Platinum lenders to underwrite their own loans, and even to make exceptions by issuing loans that failed to meet the underwriting standards.  In 2005, to save time and money, Aurora Loan Services removed the pre-funding fraud detection for all of its five Platinum lenders.   Aurora Loan Services also decided to exempt the Platinum lenders from the quality control standards that Aurora Loan Services otherwise imposed on other lenders before their loans were sold.   Aurora Loan Services did not tell investors that these five Platinum lenders were exempt from those quality control requirements.  The shortcuts and preferential treatment that Aurora Loan Services gave to the five Platinum lenders contributed, among other factors, to the deteriorating quality of some loans purchased from those lenders. Starting in late 2006, the loans purchased from the five Platinum lenders began defaulting at higher rates. Investors who bought LBHI’s residential mortgage-backed securities containing those loans suffered losses.

The settlement agreement is neither an admission of liability by Aurora Loan Services nor a concession by the United States that its claims are not well founded. 

Aurora Loan Services has minimal assets and no employees, and will be winding down.  As part of the settlement, Aurora Loan Services’ parent company, Aurora Commercial Corporation, has represented that it has not resumed, and will not resume, the origination, underwriting, purchase or sale of mortgage loans.   Aurora Loan Services has ceased all mortgage activities. 

“Aurora Loan Services’ mortgage misconduct hurt people,” said United States Attorney for the District of Colorado Bob Troyer.  “When the mortgages went into foreclosure, families lost their homes and investors lost their savings.  Aurora Loan Services is paying for this misconduct and will never be able to do it again.”

Assistant U.S. Attorneys Lila Bateman and Kevin Traskos of the District of Colorado investigated Aurora Loan Services’ conduct, with the support of the Federal Housing Finance Agency’s Office of the Inspector General.

“Aurora Loan Services knowingly put investors at risk, and the losses caused by its irresponsible behavior deeply affected not only financial institutions such as the Federal Home Loan Banks, but also taxpayers, and contributed significantly to the financial crisis,” said Special Agent in Charge Catherine Huber of the Federal Housing Finance Agency-Office of Inspector General’s (FHFA-OIG) Midwest Region.  “This settlement illustrates the tireless efforts put forth toward bringing a resolution to this chapter of the financial crisis.  FHFA-OIG will continue to work with our law enforcement partners to hold those who have engaged in misconduct accountable for their actions.”

The $41 million civil monetary penalty resolves claims under the Financial Institutions Reform, Recovery and Enforcement Act, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud.  The settlement covers not only Aurora Loan Services but two other entities related to Aurora Loan Services, Aurora Commercial Corporation, and Lehman Brothers Bancorp, Inc., the holding company of Aurora Commercial Corporation.  The settlement does not provide any release from liability to Lehman Brothers Holding Inc., which is in bankruptcy.  The settlement also does not release any individuals from potential criminal or civil liability. 

To report fraud, go to:


Jeff Dorschner, Public Affairs Specialist
U.S. Attorney's Office, District of Colorado
303-454-0243 direct line

Updated August 2, 2018