The Federal Deposit Insurance Corporation is suing a White Plains mortgage broker for allegedly misrepresenting the quality and characteristics of loans it arranged more than 15 years ago.
FDIC claims that RealFi Home Funding Corp. submitted defective loan applications to WaMu Bank before the Seattle savings and loan association collapsed in one of the worst bank failures in American financial history.
RealFi had agreed to cover any losses that WaMu incurred as a result of improper acts or omissions, according to the complaint filed Aug. 22 in U.S. District Court in White Plains.
FDIC claims that RealFi — known as Residential Home Funding Corp. when the loans were issued — created defective loan applications.
As a mortgage broker, RealFi was responsible for collecting information from borrowers, preparing loan applications and submitting the applications to WaMu. The bank funded loans and compensated RealFi for its work.
But 14 applications allegedly contained inaccurate and incomplete information.
For instance, a $337,000 loan application in 2006 listed a couple’s combined monthly income as $9,500, according to the complaint, when it was actually $4,000, thereby misrepresenting their capacity to repay the loan. Eventually, they defaulted on the loan.
Loan applications also allegedly included straw borrowers — in which the name of the actual property buyer is concealed — and false rental histories.
In summer 2008, WaMu customers withdrew $16.7 billion in deposits during a nine-day run on the bank. The U.S. Office of Thrift Supervision seized the bank and put it into receivership with FDIC. Then FDIC sold banking assets to JPMorgan Chase for $1.9 billion.
The RealFi loans had been bundled with many other home loans to create residential mortgage-backed securities. Like bonds, investors could buy the securities so as to receive regular income from the borrowers’ monthly mortgage payments.
After WaMu failed, the trustee for the residential mortgage-backed securities sued FDIC for losses resulting from defective loans. FDIC settled the dispute in 2017 for more than $3 billion.
Now FDIC, as the bank’s receiver, is demanding compensation from RealFi “in an amount to be determined at trial” for failure to cover losses from alleged defective loans.
RealFi did not respond to two emails asking for its side of the story.
