The U.S. Department of Justice (DOJ) announced that it will intervene in a False Claims Act (FCA) complaint against Guild Mortgage Company brought by a former employee of the company who accuses it of improperly originating and underwriting hundreds of mortgage loans insured by the Federal Housing Administration (FHA).
“Guild grew its FHA lending business by ignoring FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages,” the Justice Department said in a press release.
Guild was certified as a direct endorsement lender with the FHA, meaning it had the authority to originate, underwrite, and certify mortgages for FHA insurance. According to the whistleblower complaint, the mortgage company submitted hundreds of mortgages that did not comply with government standards to the government for FHA insurance.
The FCA complaint asserts that Guild employees routinely waived compliance with FHA requirements while underwriting loans, including high-risk loans for which the office of Housing and Urban Development (HUD) required only highly trained direct-endorsement underwriters to write. According to the lawsuit, Guild officials were aware of the company’s noncompliance and encouraged it in order to drive up sales volumes.
Guild’s noncompliance with FHA rules put U.S. taxpayers on the hook for bad loans that defaulted.
The complaint alleges that Guild’s quality control reviews found significant defects or moderate defects in more than half the FHA loans reviewed between 2006 and 2011. Significant defects include fraud, misrepresentation, and other substantial noncompliance while moderate defects included not following guidelines.
“This lawsuit is designed to help the FHA – and American taxpayers – recoup tens of millions of dollars in losses attributable to a lender accused of improperly underwriting FHA-insured mortgages and committing the government’s guarantee to mortgages that failed to comply with program rules,” said U.S. Attorney Channing D. Phillips for the District of Columbia, who helped prosecute the case.