Justice Department sues leading mortgage company

by Ryan Smith20 May 2016
The Department of Justice is suing a San Diego-based lender for alleged violations of the False Claims Act. Guild vehemently denies the merit of the government’s complaint, and intends to fight it, according to the company’s CEO.

A complaint has been filed against Guild Mortgage, alleging that the lender improperly originated and underwrote mortgages insured by the Federal Housing Administration, according to a DOJ release.

“This case is another example of the Justice Department’s continued efforts to ensure that lenders that participate in the FHA mortgage insurance program act in good faith and conduct appropriate due diligence when committing the United States to insure home loans,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, who heads up the DOJ’s Civil Division. “To protect the housing market and the FHA fund, we will continue to hold responsible lenders that knowingly violate the rules.”

The DOJ alleges that between 2006 and 2012, Guild, a direct endorsement lender for the FHA insurance program, knowingly submitted or caused the submission of claims for “hundreds of improperly underwritten FHA-insured loans.” The DOJ also maintains that Guild ignored FHA rules to falsely certify compliance with underwriting requirements.

The government claims that as a result of the company’s “knowingly deficient mortgage underwriting practices,” HUD has paid “tens of millions of dollars” in insurance claims on improperly underwritten loans.

Guild intends to fight the complaint, according to CEO Mary Ann McGarry.

“The government's action is unwarranted and without merit,” McGarry said in a statement provided to MPA. “The implication that any default on an FHA loan by a borrower represents wrongdoing by the lender is not justified. For more than five decades Guild has responsibly underwritten fixed rate and fully documented loans in accordance with FHA requirements. 

“This enforcement environment that lenders face today threatens to limit opportunities for home ownership and hurts the housing market,” McGarry added. “It is contrary to the mission of HUD and the FHA program to help the underserved - a Guild tradition since its founding in 1960.”

McGarry said that if the current “punitive environment” continued, the cost of lending would continue to increase for FHA borrowers until “only the wealthy” would be able to buy homes.

However, she said that Guild would continue to make FHA loans while fighting the complaint.

“Although we disagree with the allegations and intend to defend ourselves vigorously, we will continue to serve the FHA and first-time homebuyers, which we have served for more than 50 years,” McGarry said.

COMMENTS

  • by Tim | 5/20/2016 12:24:55 PM

    How about going after these sleazy lenders who charge much higher than market rates to mainly minorities on Gov't mortgages to cover the cost of these so called legal kick backs in the form of marketing agreements. Our industry continues this unethical way of doing business. The argument that it is legal is total nonsense- everyone knows it but it continues.

  • by 35 year mortgage veteran | 5/20/2016 3:45:04 PM

    what a joke. another case of the government trying to extract another pound of flesh for its poorly implemented and monitored fha program. lack of guidance and improper automated underwriting logic has caused these issues. this will only serve to increase fees to all buyers and cause lenders to go out of business or quit fha financing. government is out of control, irresponsible and inept.

  • by | 5/23/2016 9:34:08 AM

    Due to automated underwriting these things happen. Good for you gov't for going after any sleezy lender that may take advantage of it. The option to do nothing, is not an option and could ultimately tank the market AGAIN with high foreclosure futures. I don't see this as hurting the little guy if the data was manipulated & an unqualified or undocumented 'buyers' were approved. I see it one of protection since all of us must deal with many of the resulting forebearances, slower recovering economy and individual/investor purchases of properties in neighborhoods well below market value and resulting tenancy or under market buyer.

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