The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), assisted the U.S. Department of Justice, Washington, DC, and the U.S. Attorney’s Office, District of Colorado, in the civil investigation of Franklin American Mortgage Company.  Franklin American has its principal place of business in Franklin, TN.  Franklin American became an FHA-approved direct endorsement lender in 1995.  As a direct endorsement lender, Franklin American was authorized by HUD to originate and underwrite mortgage loans on HUD’s behalf, including determining a borrower’s creditworthiness and whether the proposed loan met all applicable requirements.  When a borrower defaults on an FHA-insured loan underwritten and endorsed by a direct endorsement lender, such as Franklin American, the lender (or its representative) has the option of submitting a claim to HUD to compensate the lender for any loss sustained as a result of the default.  Therefore, once a mortgage loan is endorsed for FHA insurance, HUD insures the risk of the borrower’s defaulting on that mortgage, which is realized if an insurance claim is submitted.

On December 2, 2015, Franklin American entered into a settlement agreement with the Federal Government to pay $70 million to avoid the delay, uncertainty, inconvenience, and expense of lengthy litigation of certain civil claims the Government contended it had against Franklin American.  As part of the settlement, Franklin American agreed that it engaged in certain conduct in connection with its origination, underwriting, and quality control of certain single-family residential mortgage loans insured by FHA.  The settlement was neither an admission of liability by Franklin American nor a concession by the United States that its claims were not well founded.