Guaranteed Rate has agreed to pay more than $15 million to resolve allegations that it violated the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989, according to the Department of Justice.
The Justice Department alleged that Guaranteed Rate “knowingly violated material program requirements” in originating and underwriting mortgages insured by the Department of Housing and Urban Development’s Federal Housing Administration or guaranteed by the Department of Veterans Affairs.
“The department works with our partners at HUD and the VA to protect vital federal lending programs,” said Jody Hunt, assistant attorney general with the DOJ’s Civil Division. “We will continue to protect American taxpayers and homebuyers by holding accountable FHA and VA lenders that knowingly and materially violate program requirements.”
“Lenders participating in mortgage programs backed by taxpayers must follow rules designed to protect both program integrity and homeowners,” said Grant C. Jaquith, US attorney for the Northern District of New York. “Today’s settlement holds Guaranteed Rate accountable for its past violations and reflects that it has strengthened its internal controls to ensure future compliance with Federal Housing Administration and Department of Veterans Affairs requirements.”
Participants in FHA and VA programs have the authority to originate and underwrite loans without first having the government review those loans for compliance. If an FHA-insured or VA-guaranteed loan defaults, the holder of the loan may submit a claim to the United States to cover certain losses. The government requires lenders to follow FHA and VA guidelines designed to ensure that only mortgages meeting certain credit and underwriting criteria are insured or guaranteed by the FHA or VA.
The DOJ alleged that Guaranteed Rate knowingly failed to comply with program rules that require lenders to maintain quality control programs to prevent and correct any deficiencies in underwriting, self-report any materially deficient loans they identify, and ensure that there are no conflicts of interest in the underwriting process.
As part of the settlement, Guaranteed Rate admitted that it had not adhered to self-reporting requirements, that its FHA underwriters received commissions and gifts – a violation of program rules – and that its government underwriters were sometimes instructed not to review documents that were relevant to their underwriting decisions. The lender also admitted that it certified loans that weren’t eligible for FHA mortgage insurance or VA guarantees, and that HUD and the VA would not have guaranteed or insured those loans otherwise.
While the alleged conduct started as early as 2008, the DOJ said that Guaranteed Rate “took significant steps” to curb the practices, both before and after it was notified of the federal probe. It received credit for doing so in connection with the settlement, the DOJ said.