On June 14, 2023, the Seventh Circuit issued a decision in United States ex rel. Michelle Calderon v. Carrington Mortgage Services, LLC, No. 22-1553, 2023 WL 3991013, (7th Cir. June 14, 2023), which clarified the plaintiffs' burden to establish causation in connection with False Claims Act ("FCA") claims concerning federally-insured mortgages.
As the Seventh Circuit explained, "[f]ederal mortgage insurance is designed to create a path to homeownership for borrowers who might be considered too risky to qualify for a traditional mortgage because of their lack of savings, poor credit history, or low income. The Direct Endorsement Lender program is one through which [the US Department of Housing and Urban Development ("HUD")] provides mortgage insurance to approved, private lenders. HUD covers the losses of private lenders in the event of a loan default to encourage the issuance of these higher risk mortgages." 2023 WL 3991013, at *1.
Carrington Mortgage Services, LLC ("Carrington") served as "a Direct Endorsement Lender for many years." Id. Accordingly, if it "wishe[d] to cover a loan with federal mortgage insurance, it [had to] first submit to an underwriting process during which it assesses the prospective borrower's eligibility for federal insurance. . . . After the lender approves the loan, the lender submits the loan to HUD for review and endorsement. Through this submission, the lender certifies to HUD that the borrower meets the minimum standards of HUD's...
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