FDIC sues PulteGroup over Washington Mutual Bank collapse

Failure fueled by risky mortgage lending is still biggest in US history 

FDIC Sues PulteGroup Over ‘Defective Loans’ from WaMu Collapse
From left: PulteGroup CEO Ryan Marshall and FDIC chairman Martin J. Gruenberg (Photo Illustration by Steven Dilakian for The Real Deal with Getty, PulteGroup)

Fifteen years after Washington Mutual’s failure, the Federal Deposit Insurance Corporation is coming after Pulte Mortgage for its role in the largest banking collapse in U.S. history.

The agency filed a lawsuit alleging that CTX Mortgage Company, which was consumed into the PulteGroup brand under the banner of Pulte Mortgage in 2009, sold “defective loans” funded by Washington Mutual into RMBS trusts. Deutsche Bank served as a trustee on these trusts, which included at least 24 mortgage loans brokered by CTX.

The FDIC is now targeting Pulte, one of the country’s largest homebuilders, as a means to recoup some of the losses it incurred settling Deutsche Bank’s claims.

These defective loans contained inaccurate and incomplete information on their applications, according to the complaint. The loans extended to misrepresentations of the quality or characteristics of the loans, the borrowers and/or the collateral, including borrowers’ credit histories, employment status and income.

In one of the 24 defective loans supplied by the mortgage company, the filing says CTX prepared and submitted loan applications on behalf of two borrowers that significantly misrepresented their combined monthly income, reporting it as more than $13,000 when they were actually bringing in only $6,900.

In another example, CTX lied about an applicant’s credit score and failed to disclose that the customer had a $176,000 mortgage debt on another property, purchased from the same seller “one week prior to the funding of the subject loan,” according to the complaint.

PulteGroup did not immediately respond to a request for comment.

Other cases from the 2008 mortgage meltdown are slowly being resolved. This month, Swiss bank UBS settled the last of the lingering lawsuits brought by the Department of Justice against large financial institutions after the global financial crisis. UBS agreed to pay $1.4 billion in civil penalties.

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Also in mid August, the FDIC sued homebuilder Lennar in a case similar to the one brought against PulteGroup. The Lennar suit cites 27 allegedly defective loans that were bundled and sold as securities. In July, the FDIC sued a Utah mortgage broker over loan applications it processed before the housing bubble burst.

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The FDIC has not disclosed how much it is pursuing in damages for the alleged fraud, but said it will determine an amount at trial.

The suit by the government corporation is not the only legal drama to hit PulteGroup in just the last year. 

Homebuilding heir Bill Pulte, a grandson of the firm’s late founder, filed in December the latest in a flurry of lawsuits between him and Brandon Jones, a former executive, claiming harassment, stalking, defamation, securities fraud and even arson. Jones was ultimately ousted from the Fortune 500 company. (There is no evidence of Pulte or his family engaging in criminal activity, and no charges ever been brought against Pulte or his family concerning securities fraud.)

In July, the group was slapped with another lawsuit in which a former employee alleged racial discrimination within Pulte’s corporate hierarchy, claiming the group weaponized its HR department to limit the promotions of its Black employees. One former employee claimed the company saw him as a “field hand,” reported BusinessWire.

The firm that brought the suit soon withdrew it, saying in an unusual press release that it was unhappy with the potential settlement terms.

Correction: A photo caption in an earlier version of this story incorrectly identified Bill Pulte as part of PulteGroup. He is no longer a member of the company’s board.