U.S. Bank, a banking services company, agreed this week to pay $200 million to the Department of Justice to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the Federal Housing Administration that did not meet underwriting requirements.

The settlement resolves a joint investigation conducted by the Department of Housing and Urban Development (HUD), its Office of Inspector General, the Justice Department's Civil Division, and the U.S. Attorney's Offices for the Northern District of Ohio and the Eastern District of Michigan.

“This substantial recovery on behalf of the Federal Housing Administration should serve as a vivid reminder of the potential consequences of not following HUD program rules, and the diligence with which we will pursue those that violate them, particularly where lenders such as U.S. Bank take actions to compromise the insurance fund,” David Montoya, HUD's Inspector General, said in a prepared statement.

According to the allegations, U.S. Bank participated in the FHA insurance program as a direct endorsement lender, with authority to originate, underwrite, and certify mortgages for FHA insurance. If a loan certified for FHA insurance later defaults, the holder of the loan may submit an insurance claim to HUD, FHA's parent agency, for the losses resulting from the defaulted loan. 

Because FHA doesn't review a loan before it's endorsed for FHA insurance, FHA requires a direct endorsement lender to follow program rules designed to ensure that the lender is properly underwriting and submitting mortgages for FHA insurance.

As part of the settlement, U.S. Bank admitted that from 2006 through 2011 it repeatedly certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements. It also admitted that its quality control program did not meet FHA requirements. As a result, it "failed to identify deficiencies in many of the loans it had certified for FHA insurance, failed to self-report many deficient loans to HUD, and failed to take the corrective action required under the program," the Justice Department stated.

U.S. Bank further acknowledged that its conduct caused FHA to insure thousands of loans that were not eligible for insurance and that the FHA suffered substantial losses when it later paid insurance claims on those loans.