According to an October 28 Department of Justice press release, Guild Mortgage Company has agreed to pay $24.9 million to settle allegations that they violated the False Claims Act by not adhering to government regulations when approving loans. The government alleges that between 2007 and 2011, the San Diego, CA based mortgage lender knowingly originated and underwrote mortgages that they knew were both risky and did not meet material program requirements. The mortgages they approved were insured by the Federal Housing Administration (FHA) and when many of the loans defaulted, Guild Mortgage Company collected money from the FHA to cover the damages.
The government allows some lending companies to originate and underwrite mortgages without checking them over, assuming that companies are acting in good faith. The FHA has a set of strict regulations for determining which mortgages are risky and which can be considered sound. The complaint alleges that Guild Mortgage Company took advantage of the lack of direct oversight and capitalized on loans they knew were most likely going to default in order to collect the insurance money from the FHA.
Rae Oliver Davis, U.S. Department of Housing and Urban Development (HUD) Inspector General, highlighted the importance of whistleblower programs in uncovering housing and mortgage fraud: “The Federal Housing Administration (FHA) insurance program is a critical tool that helps hardworking Americans achieve their dream of homeownership. Any abuse of that program is unacceptable and the bad actors will be held accountable. This case highlights the effectiveness and the importance of whistleblower programs.”
The complaint was brought to the attention of the government by a whistleblower, former employee of Guild Mortgage Company Kevin Dougherty. Dougherty was head of quality control at Guild Mortgage Company when he noticed the fraudulent behavior. Under the qui tam provisions of the False Claims Act, individuals can bring claims against corporations if they have insider evidence of fraud. False Claims Act whistleblowers can also receive 10 to 30% of the total funds recovered by the government in a settlement. Dougherty will receive $4,980,000 for his assistance.
Read the Department of Justice press release here.