Tennessee's biggest bank will pay a $212.5 million penalty to resolve allegations that the bank violated federal law with its mortgage-backed securities from 2006 to 2008.
First Tennessee Bank had previously reserved $50 million for the settlement and said Monday it will take a $162.5 million pre-tax charge to its quarterly earnings. First Horizon National Corp., the Memphis holding company that controls the bank, previously disclosed a settlement was being negotiated.
The Department of Justice, which announced the settlement after the markets were closed Monday night, said First Horizon violated the False Claims Act "by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements."
"Our investigation found that First Tennessee caused FHA to pay claims on loans that the bank never should have approved and insured in the first place," HUD Inspector General David A. Montoya said in a statement Monday. "This settlement reinforces my commitment to combat fraud in the origination of single-family mortgages insured by the FHA and makes certain that only qualified, creditworthy borrowers who can repay their mortgages are approved under the FHA program."
Acting U.S. Attorney John A. Horn said in statement that while First Tennessee "profited from these loans, taxpayers incurred substantial losses when the loans defaulted."
First Horizon. which operated one of the nation's 20 largest residential mortgage businesses, sold the unit in 2008 to MetLife Bank. In February, MetLife agreed to pay $123.5 million to resolve False Claims Act liabilities arising from loans originated after it acquired the mortgage business from First Horizon.
"We are pleased to put this issue related to the mortgage business we sold in 2008 behind us," First Horizon chairman Bryan Jordan said Monday in a statement. "We are excited about the future, and we have the best people in the business focused on building long-term relationships with our customers."