James B. Nutter & Co., well regarded Kansas City home lender, sued by Feds for fraud
James B. Nutter & Co., the Kansas City home lender that usually enjoys a clean reputation in its industry, faces accusations by the Justice Department of misconduct in its reverse mortgage practices.
A civil lawsuit filed by the Justice Department accuses James B. Nutter & Co. of boosting its loan production by hiring unqualified underwriters to review federally insured reverse mortgages meant for elderly homeowners and forging signatures to make it seem like qualified underwriters approved the loans.
The lawsuit was originally filed in federal court in Washington, D.C., and recently was transferred to federal court in Kansas City.
Lawyers for James B. Nutter & Co. disputed the government’s claims, saying the accusations are unsubstantiated and “inconsistent with our core values and culture.”
“The charges represent an overreach by an overly aggressive Department of Justice, and we strongly dispute both the factual accuracy and legal merits of the allegations,” said Edward Kang, a partner in the Washington, D.C., office of Alston & Bird, which is representing James B. Nutter & Co. “We are confident that when the relevant facts and law are presented to a neutral factfinder, the Company will prevail.”
James B. Nutter & Co. got its start in Kansas City in 1951 by its late namesake founder, who would become one of the region’s revered civic figures and political influencers before he died in 2017.
The company was known for providing loans in minority communities that other banks ignored, avoiding the subprime mortgage mess that sparked the Great Recession and being one of the first to offer Veterans Administration loans.
The Justice Department’s lawsuit, however, paints a different picture of the company’s practices.
The 66-page filing involves what are called Home Equity Conversion Mortgages, a type of home equity loan under the U.S. Department of Housing and Urban Development that are more commonly known as reverse mortgages.
These HUD-backed mortgages are meant for homeowners 62 or older who can tap the equity in their homes and is promoted as a way to help seniors age in their homes.
Because these types of reverse mortgages arranged through private lenders are insured against losses by the government, HUD requires loan underwriters to meet certain qualifications, including an understanding of accurate appraisals, and approve loans that meet agency standards.
Instead of using underwriters who met HUD specifications to process loans, the Justice Department accuses James B. Nutter & Co. of using underqualified temporary contractors, some of whom the lawsuit said didn’t understand what they were approving.
The lawsuit said James B. Nutter & Co. forged the signatures of qualified underwriters to make it appear as though they have been approved properly.
The result of the alleged misconduct, according to the lawsuit, was the government paying out “tens of millions of dollars in excess claims” when it insured properties that were overvalued and worth less than the amount of the loan.
The lawsuit also said borrowers were affected when overvalued loans increased their monthly expenses and increased their risk of default.
The Justice Department said James B. Nutter & Co. started issuing these government-backed reverse mortgages in 1989 but expanded its production of the loans in 2007 and 2008, a time when interest rates fell as home values increased and more Baby Boomers became eligible for the program.
The government’s accusations say the misconduct occurred from 2008 to 2010.
“Not only do the allegations relate solely to conduct that occurred over a decade ago, but the complaint also fails to mention that during this time period, HUD’s guidelines were far from clear and consistent,” Kang, the company’s lawyer, said. “The Company complied with HUD’s then-applicable guidelines as they reasonably understood them. The Justice Department’s belated allegations in this case are an attempt to rewrite the guidelines ten years after the fact.”
The government seeks an unspecified amount in damages, but given the nature of the accusations says it should receive triple the actual amount.
This story was originally published November 9, 2020 at 5:00 AM.
