On December 14, 2022, the Department of Justice announced in a statement that Academy Mortgage Corporation, a mortgage company based in Draper, Utah, agreed to pay $38.5 million to settle False Claims Act allegations related to mortgages insured by the Federal Housing Administration (FHA). A former underwriter of Academy Mortgage Corporation blew the whistle by filing a lawsuit in the Northern District of California under the qui tam, also known as the whistleblower provisions of the False Claims Act, alleging that from January 2008 through April 2017, the company had an underwriting process that led employees to disregard FHA rules and falsely certify compliance with underwriting requirements.
The FHA insures the mortgage and pays the lender if the homebuyer defaults on or fails to repay the loan and only lenders that the Department of Housing and Urban Development approves can participate in the program. The whistleblower, also known as the relator, alleged that as a result of Academy Mortgage Corporation’s deficient mortgage underwriting practices, the government paid insurance claims on loans that were improperly underwritten by the company.
Academy Mortgage Corporation’s risky and unlawful practices put the public fisc at risk. In taking up suit, the government sought to penalize the wrongdoer and prevent abuse of national programs designed to promote home ownership going forward.
While the government has the incentive to crack down on fraud so that its programs are not being taken advantage of, whistleblowers also have an incentive to report violations of the FCA. Qui tam whistleblowers are eligible to receive between 15 and 30% of the government’s recovery if one occurs. Of the $38.5 million that the company will pay the United States government, the whistleblower in this action will receive $11,511,500 as her share of the settlement proceeds.
The Department of Justice has recovered billions of dollars under the False Claims Act from other lenders accused of knowingly violating FHA requirements. The False Claims Act remains one of the most powerful tools at the disposal of the government and whistleblowers to combat fraudulent schemes such as the one described above.
