Prospect Mortgage, Sherman Oaks, Calif., Wednesday afternoon agreed to pay the Department of Housing and Urban Development (HUD) $3.1 million to settle charges that it created sham affiliated business arrangements as part of a scheme to share in “kickbacks” paid to these joint ventures.

Although Prospect agreed to settle the allegations, pay the fine, and unwind the JVs in question, it also officially denied the charges. The settlement with acting Federal Housing Administration (FHA) commissioner was signed by Prospect Mortgage CEO Ronald Bergum.

Among Ginnie Mae issuers Prospects ranks 38th, according to figures compiled by National Mortgage News and the Quarterly Data Report.

Although the settlement was disclosed by HUD on its Web site Wednesday afternoon, the agreement to settle was signed late last week.

HUD said Prospect entered into what it calls “subscription agreements” with Realtors, loan brokers, banks, mortgage servicers and others “to give the appearance that it was creating legitimate joint ventures to provide real and compensable services.”  But the government says these affiliated businesses actually had little or no employees, capital, or even offices.

These affiliated units were involved in the production of FHA loans through non approved branches. HUD said in return for the referral of business, the lender shared 50% of its profits with its partners.

HUD said not only were the ventures “not bonafide affiliated businesses,” but many were not FHA approved lenders.

Prospect is controlled, in part, by Sterling Partners, a private equity firm based in Chicago.

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