Financial institutions settled several False Claims Act (FCA) cases involving allegations they failed to comply with Federal Housing Administration (FHA) rules regulating federally-insured mortgage programs in 2020. But, reliance on the FCA to enforce FHA regulations appears to have slowed just as financial institutions’ role in distributing more than $522 billion in Paycheck Protection Program (PPP) loans and another $3.7 billion in the Main Street Lending Program (MSLP) loans have created new FCA risk for lenders.

Recent developments in FHA enforcement

Until recently, FCA enforcement actions were the primary tool employed by the United States Department of Justice (DOJ) to punish lenders that failed to comply with the rules and standards regulating FHA mortgage loan programs. From 2009 through 2016 alone, DOJ recovered more than $7 billion in FCA settlements and judgments relating to housing and financial fraud.1 This risk, along with a lack of transparency in the program’s standards, had the effect of deterring lenders from originating FHA-insured loans.2 Thus, in October 2019, in an effort to encourage lenders to once again participate in FHA lending programs, DOJ and the Department of Housing and Urban Development (HUD) issued a Memorandum of Understanding (MOU) outlining a new joint approach to FCA enforcement.3 The MOU announced that FHA lending requirements would be enforced primarily through HUD’s administrative proceedings process, but cautioned that DOJ and HUD would continue to coordinate to determine whether the facts and circumstances of certain defects in FHA-insured mortgage loans warrant enforcement through the FCA. The MOU also prescribed new standards for when HUD may refer a matter for FCA enforcement and set forth guidelines on how HUD and DOJ will cooperate during the investigative, litigation and settlement phases of FCA matters.

Following issuance of the MOU, DOJ settled a number of significant FCA matters that had been pending prior to October 2019.4 However, consistent with the MOU’s new approach to FCA enforcement, DOJ has only announced the filing of one new FCA lawsuit against a financial institution for originating unqualified FHA-insured loans since October 2019. In September 2020, the government commenced a civil action against Nutter Home Loans f/k/a James B. Nutter & Co. for allegedly forging certifications and using unqualified underwriters to approve reverse mortgage loans under the FHA-insured Home Equity Conversion Mortgage program.5 We expect DOJ’s more reserved approach to employing the FCA to enforce HUD regulations to continue into 2021. However, the change in political leadership at DOJ and FHA could bring modifications to the MOU and shape enforcement priorities.

New FCA risk posed by Paycheck Protection Program and Main Street Lending Program

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which aimed to address the troubling economic impact of the COVID-19 pandemic, was signed into law on March 27, 2020, and established the PPP and the MSLP programs.

Under the PPP, small businesses may obtain low interest rate loans − which may be eligible for forgiveness − to cover payroll costs, rent, and other overhead expenses. The Small Business Administration (SBA) is responsible for administering the program: authorizing lenders to distribute PPP loans and reimbursing the lenders for forgiven amounts. As of August 8, 2020, when the program closed, 5,460 lenders had participated in the program, issuing 5,212,128 loans, totaling $525,012,124.7 The MSLP which, in contrast, is administered by the Federal Reserve, aims to make lending available to small and medium-sized for-profit businesses and nonprofit organizations. The MSLP, which does not provide for loan forgiveness, has been much less popular than the PPP and has distributed 400 loans totaling $3.7 billion as of October 30, 2020.8

The extent of FCA risk that accompanies participation in the PPP and MSLP is not yet clear. As noted above, prior to issuance of the MOU between DOJ and HUD, DOJ had long used the FCA as a vehicle to punish lenders that violate FHA-program requirements.9 Absent similar MOUs between DOJ and the SBA and DOJ and the Federal Reserve, it is unclear whether DOJ will aggressively employ the FCA against lenders that violate rules regulating the PPP and MSLP. DOJ’s commitment to enforcement actions against perpetrators of COVID-19-related fraud has been clear since the beginning of the pandemic when DOJ took steps to collect and share tips with other federal agencies, appointed a Coronavirus Fraud Coordinator in each judicial district, and appointed numerous state-wide and regional COVID-19 fraud task forces.10 However, there are other indications that FCA enforcement against financial institutions related to participation in the PPP and MSLP may not rival the pre-MOU level of FCA enforcement in federally-insured mortgage programs. 

First, the SBA’s PPP rules permit lenders to largely rely on borrowers’ representations and certifications at the initial application and loan forgiveness stages. The SBA has indicated it will “hold harmless any lender that relies on such borrower documents and attestation from a borrower”11 Lenders must, however, confirm that borrowers have submitted proper documentation. It’s thus possible lenders could face significant FCA risk if they ignore red flags of fraud by borrowers, fail to collect required documentation, or fail to comply with anti-money laundering rules, which PPP rules specify all lenders must have in place. Lenders under the MSLP must conduct an assessment of a potential borrower’s financial condition and apply their own underwriting standards. However, the Federal Reserve’s FAQs note that lenders may rely on the borrower’s certifications of eligibility and compliance with program requirements, and are not expected to independently verify the certifications or monitor ongoing compliance, but should notify the Federal Reserve Bank of Boston if they become aware that a borrower “made a material misstatement or otherwise breached a covenant during the term” of a MSLP loan.12

Looking forward

The DOJ-HUD MOU appears to have slowed the torrent of FCA cases in the mortgage industry, but the scope of new FCA risk facing financial institutions as a result of participation in the PPP and the MSLP programs is still unclear. Agency rules regulating these programs do not directly address DOJ enforcement policies. Absent a MOU or other clear policy statement from DOJ, we will have to continue to monitor DOJ’s actions in 2021 to discern the degree to which DOJ will use the FCA as a vehicle for policing PPP and MSLP lending.


1. U.S. Dep’t of Justice, Fact Sheet: Significant False Claims Act Settlements & Judgments, Fiscal Years 2009-2016, available at
2. U.S. Dep’t of Treasury, A Financial System that Creates Economic Opportunities: Nonbank Financials, Fintech, and Innova-tion, Updating Activity-Specific Regulations, Lending and Servicing, at p. 10 (July 2018), available at https://home.treasury.
3. U.S. Dep’t of Housing and Urban Dev., Memorandum of Understanding Between the Department of Housing and Urban Development and the Department of Justice, Inter-Agency Coordination of Civil Actions Under the False Claims Act Against Participants in FHA Single Family Mortgage Insurance Programs (Oct. 29, 2019), available at
4. Recent settlements include a March 2020 settlement with Finance America Reverse, which agreed to pay $2.47 million to resolve allegations that it violated the FCA by knowingly originating hundreds of FHA-insured loans that failed to meet the program’s requirements. See U.S. Dep’t of Justice, Finance of America Reverse Agrees to Pay $2.47 Million to Resolve Alleged Liability for FHA-Insured Reverse Mortgage Lending Violations, (Mar. 31, 2020), available at https://www.justice. gov/opa/pr/finance-america-reverse-agrees-pay-247-million-resolve-alleged-liability-fha-insured-reverse. Similarly, in April 2020, DOJ announced that Guaranteed Rate, Inc. agreed to pay $15.06 million to settle FCA claims that it knowingly vio-lated material program requirements when originating FHA-insured loans. See U.S. Dep’t of Justice, Guaranteed Rate to Pay $15 Million to Resolve Allegations It Knowingly Caused False Claims to Government Mortgage Loan Programs, (Apr. 29, 2020), available at And, in October 2020, DOJ announced that Guild Mortgage Company agreed to pay $24.9 million to settle similar FCA claims. See U.S. Dep’t of Justice, Guild Mortgage Company to Pay $24.9 Million to Resolve Allegations it Knowingly Caused False Claims for Federal Mortgage Insurance, (Oct. 28, 2020), available at
5. U.S. Dep’t of Justice, United States Files Complaint Against Nutter Home Loans for Forging Certifications and Using Un-qualified Underwriters to Approve Government-Insured Reverse Mortgages, (Sept. 25, 2020), available at https://www.
6. See U.S. Small Bus. Admin., Interim Final Rule, Paycheck Protection Program, 13 C.F.R. Part 120, 85 Fed. Reg. 20811 (Apr. 15, 2020), available at pdf. See also Press Release, Board of Governors of the Federal Reserve System, Federal Board Adjusts Terms Of Main Street Lending Program To Better Target Support To Smaller Business That Employ Millions Of Workers And Are Facing Continued Revenue Shortfalls Due To The Pandemic (Oct. 30, 2020), available at
7. U.S. Small Bus. Admin., Paycheck Protection Program (PPP) Report, Approvals through 08/08/2020, available at 
8. Board of Governors of the Federal Reserve System, 
9. U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Provides Keynote Remarks at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 27, 2020), available at 
10. U.S. Dep’t of Justice, Department of Justice is Combatting COVID-19 Fraud But Reminds the Public to Remain Vigilant, (Oct. 15, 2020) available at
11. 13 C.F.R. Part 120, 85 Fed. Reg. 20811 (Apr. 15, 2020), available at
12. Board of Governors of the Federal Reserve System, Main Street Lending Program Frequently Asked Questions (FAQs) For-Profit Frequently Asked Questions (November 25, 2020) (PDF), at p. 46, available at