Consumer Fraud

Whistleblower Case Recovers $14.5 Million From Finance of America Mortgage

whistleblower housing mortgage 362x210 Whistleblower Case Recovers $14.5 Million From Finance of America MortgageA whistleblower was instrumental in helping the U.S. recover $14.5 million in Federal Housing Administration (FHA) insurance funds from Gateway Funding Diversified Mortgage Services, which Finance of America Mortgage LLC acquired in 2015.

Debra McGeehan, a former quality control underwriter for Gateway, filed a lawsuit on behalf of the U.S. government under the whistleblower provisions of the False Claims Act. She alleges that Gateway knowingly originated and underwrote mortgage loans that did not qualify for FHA insurance. When borrowers defaulted on their mortgages, FHA (i.e. U.S. taxpayers) got stuck with the bill.

Gateway participated as a direct endorsement lender (DEL) in the FHA insurance program. As a DEL, the company had the authority to originate, underwrite, and endorse mortgages for FHA insurance. Gateway was also required to follow specific underwriting guidelines, maintain a quality control program, and report problem loans to the Department of Housing and Urban Development (HUD).

The whistleblower lawsuit alleged that when Gateway team members alerted executives that the lender’s loans had a high default rate and that specific branches and underwriters were displaying “a pattern of poor performance,” the company took no action to remedy the problem.

“It is extremely frustrating when a mortgage company identifies issues with loans as part of its quality control process, but then deliberately ignores those findings,” Ms. McGeehan said, according to a settlement announcement. “Gateway was only interested in its own financial interests, and was willing to ignore its own quality control findings in order to defraud the FHA program.”

The U.S. has settled dozens of similar cases of subprime mortgage fraud in recent years. Many of those cases contributed to the housing market crash of 2008. Insider whistleblowers have played a key role in helping the government recover funds to lenders that systematically underwrote deficient mortgage loans.

Ms. McGeehan will receive about $2.4 million of the settlement (about 16.5 percent) as an award for bringing the whistleblower case.