The Draper, Utah-headquartered lender Academy Mortgage Corporation has agreed to pay $38.5 million to settle allegations that it improperly originated and underwrote mortgages insured by the Federal Housing Administration (FHA).
The Department of Justice‘s settlement announcement on Wednesday resolves a lawsuit filed by former Academy Mortgage underwriter Gwen Thrower in the Northern District of California under the whistleblower provisions of the False Claims Act. The law permits a private party to file a suit on behalf of the government and receive a portion of any recovery.
Thrower alleged that from January 2008 through April 2017, Academy had an underwriting process that led employees to disregard FHA rules and falsely certify compliance with underwriting requirements. As a result of Academy’s misconduct, the government paid the false or fraudulent insurance claims on loans improperly underwritten by Academy, Thrower claimed.
“Lenders that knowingly cause the government to guarantee loans that are materially deficient put both homeowners and the public fisc at risk,” Brian Boynton, principal deputy assistant attorney general and head of the Justice Department’s civil division, said in a statement.
Academy will pay Thrower $11.5 million for her share of the settlement proceeds and the rest will go to the government.
Thomas & Solomon LLP, which represented Thrower, said the government attempted to get the case dismissed in 2018, arguing that the case was not worth pursuing because there was no viable recovery. The government lost both at the trial court in August 2018 and on appeal in 2020.
“Anytime you entrust government bureaucrats to decide which cases to throw out, you know you [you’re] deciding to throw taxpayer dollars away,” Thrower’s attorney, Nelson Thomas, of the law firm Thomas & Solomon, said in a statement.
Academy’s settlement of a False Claims Act is the first case in the mortgage industry since Guild Mortgage agreed in October 2020 to pay $24.9 million without admitting or denying liability, just before going public, according to National Mortgage News.
The San Diego, California-headquartered lender was sued by the former head of quality control at Guild for knowingly approving ineligible loans that later defaulted and resulted in claims to the FHA for mortgage insurance.
Allegations also included Guild’s failure to comply with material program rules that require lenders to maintain quality control programs to prevent and correct underwriting deficiencies.
