Utah-based mortgage company Academy Mortgage Corporation (“Academy”) agreed to pay $38.5 million to the United States to settle allegations that Academy violated the False Claims Act by knowingly originating and underwriting deficient home loans.
The settlement resulted from a whistleblower lawsuit filed in 2016 in the Northern District of California by former Academy employee, Gwen Thrower. The Justice Department initially declined to intervene in the lawsuit pursuant to its rights under the False Claims Act, and in 2017, the department sought to dismiss the case, on the basis that the litigation would overly burden the government with discovery requests. However, U.S. District Judge Edward Chen rejected the request to dismiss in 2018, finding that the government had failed to meaningfully assess the costs and benefits of allowing the case to move forward.
Thrower, who was a mortgage underwriter for the company, continued to pursue the case, alleging that between January 2008 and April 2017, Academy’s underwriting process caused employees to violate Federal Housing Administration (“FHA”) regulations and falsely certify compliance with FHA underwriting requirements on FHA-backed loans.
The FHA, part of the U.S. Department of Housing and Urban Development (“HUD”), provides mortgage insurance on loans made by FHA-approved lenders, protecting the lenders against losses if the borrower defaults on the mortgage. Because HUD is liable to repay defaulted loans, approved lenders must certify that loans comply with FHA/HUD regulations after determining the borrower’s ability and willingness to repay the loan. Thrower alleged that Academy’s knowingly deficient underwriting process caused the government to pay insurance claims on loans that were improperly underwritten in violation of government regulations.
Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division, stated that “lenders that knowingly cause the government to guarantee loans that are materially deficient put both homeowners and the public fisc at risk” and commended the justice department’s “actions to prevent abuse of government programs designed to foster home ownership.”
Under the terms of the settlement, the United States will receive a payment of $38,500,000. Thrower, the whistleblower in this action, will be entitled to collect a sum of $11,511,500. Despite the substantial settlement, there has been no determination of Academy’s liability and Academy maintains it settled the case “to mitigate additional costs and disruption of further litigation.”