American Financial Network Lawsuit: DOJ, FDIC, and State Actions

American Financial Network, Inc. (AFN), a family-owned mortgage lender based in Brea, California, has resolved three significant sets of legal claims over the past several years: a June 2022 U.S. Department of Justice settlement of more than $1 million over Federal Housing Administration loan fraud allegations, a 2023 settlement with the FDIC as receiver for Washington Mutual for $650,000, and a December 2021 Washington state consent order carrying a $200,000 fine over deceptive direct-mail advertising, with parallel state actions in Utah and Virginia. AFN did not admit wrongdoing in any of them, and no criminal charges were filed.

The DOJ FHA Loan Fraud Settlement

In June 2022, AFN agreed to pay $1,037,145 to resolve allegations that it violated the federal False Claims Act by improperly originating FHA-insured mortgages. The settlement was announced by U.S. Attorney Vanessa R. Waldref for the Eastern District of Washington.¹

The case began as a whistleblower suit. A former AFN loan processor filed a qui tam complaint under seal in federal court in Spokane in March 2019 (Case No. 2:19-cv-00075-SAB). The complaint alleged that between December 2011 and March 2019, AFN knowingly underwrote and approved FHA-insured mortgages that did not meet program requirements. Because AFN participated in FHA’s Direct Endorsement Program, it could approve loans for government insurance on its own authority, leaving the FHA to bear the loss when borrowers defaulted.¹²

The government also alleged AFN knowingly failed to perform mandatory quality control reviews on its FHA loans, a core safeguard meant to catch underwriting problems before they turn into taxpayer losses.³ The U.S. Attorney’s Office, HUD Office of Inspector General, and Department of Veterans Affairs Office of Inspector General jointly investigated the claims.¹

AFN did not admit wrongdoing, and the DOJ noted there had been no determination of liability.² The whistleblower received $228,172 of the settlement proceeds, plus attorney’s fees and costs.¹

The FDIC / Washington Mutual Settlement

The FDIC, acting as receiver for the failed Washington Mutual Bank, sued AFN in February 2022 in the U.S. District Court for the Central District of California (Case No. 8:22-cv-00281). The claims traced back to AFN’s earlier work as a mortgage broker for Washington Mutual, which collapsed in September 2008.⁴

AFN initially defaulted in May 2022, but the default was set aside later that month by stipulation. The case went to private mediation in July 2022 and settled. AFN agreed to pay the FDIC $650,000: a $150,000 initial payment due by August 2023, followed by twenty monthly installments of $25,000 beginning September 2023.⁵ Both sides released each other from claims tied to AFN’s brokerage work for Washington Mutual. The case was terminated on August 10, 2023.⁴

State Actions Over Deceptive Advertising

A string of state regulators have taken action against AFN over misleading direct-mail advertising, most of it involving reverse mortgages (Home Equity Conversion Mortgages, or HECMs), FHA loans, and VA loans. The most substantial was a Washington State Department of Financial Institutions consent order entered December 30, 2021.

The Washington DFI case (No. C-18-2383) named both AFN (NMLS #237341) and CEO John Robert Sherman III (NMLS #238680). Regulators alleged that AFN’s mailings used official-looking emblems designed to mimic government agencies, manufactured urgency with claims about imminent changes to HECM loans or HUD policy, and omitted credit terms federal law required them to disclose. The department also found AFN had failed to comply with subpoenas and directives during the investigation.⁶

AFN admitted it had failed to maintain adequate advertising compliance policies and testing systems. Its Washington consumer loan license was revoked, with the revocation stayed for two years contingent on future compliance. AFN and Sherman were jointly liable for a $200,000 fine, half paid on December 29, 2021, and the other $100,000 stayed for two years, to be imposed only if AFN failed a mandatory compliance examination. The company also paid a $12,000 investigation fee.⁶

The Washington file documented similar actions in other states:

Utah, June 2021: a stipulation and order resolving allegations about misleading HECM and VA loan solicitations sent in 2017, 2018, and 2020.
Virginia, March 2019: a consent order imposing a $2,500 civil penalty for mortgage broker advertising violations.
Virginia, August 2016: an earlier consent order carrying a $10,000 civil penalty for failing to disclose NMLS identification numbers and for misleading refinancing disclosures.
Washington, 2013: a resolution letter flagging AFN’s use of official-looking emblems that resembled government agencies on mailings.

The conduct across these matters is consistent: direct-mail pieces that either resembled government notices or omitted legally required loan disclosures.⁶

Where AFN Stands Now

AFN continues to operate as a licensed lender in all 50 states under NMLS #237341.⁷ John Sherman remains CEO, and Andy Kalyviaris serves as Chief Compliance Officer and General Counsel, overseeing licensing and marketing.⁸ None of the settlements or consent orders described here included an admission of wrongdoing by AFN, and the company did not face criminal charges in any of these matters.

1
U.S. Department of Justice. California Mortgage Lender Agrees to Pay More Than $1 Million to Resolve Fraud Allegations
2
HousingWire. American Financial Network to Pay $1M Fee to Resolve Fraud Allegations
3
National Mortgage Professional. Lender to Pay Over $1M to Resolve Mortgage Fraud Allegations
4
CourtListener. FDIC as Receiver for Washington Mutual Bank v. American Financial Network, Inc.
5
FDIC. FDIC-R v. AFN Settlement Agreement
6
Washington Department of Financial Institutions. Consent Order No. C-18-2383-21-CO02
7
American Financial Network, Inc. AFN Licensing Information
8
HousingWire. 2024 Insider: Andy Kalyviaris, Esq.