ALBANY, NEW YORK – RealEstateRama – Guaranteed Rate, Inc. has agreed to pay the United States $15.06 million to resolve allegations that it violated the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by knowingly violating material program requirements when it originated and underwrote mortgages insured by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), United States Attorney Grant C. Jaquith announced today. Guaranteed Rate is headquartered in Chicago, Illinois, with branches across the United States, including in upstate New York.
“Lenders participating in mortgage programs backed by taxpayers must follow rules designed to protect both program integrity and homeowners,” said United States Attorney Jaquith. “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 insurance and VA guarantee programs, like Guaranteed Rate, have the authority to originate and underwrite mortgage loans without first having the government review the loans for compliance with the agency’s underwriting and origination requirements. If an FHA insured or VA guaranteed loan defaults, the holder of the loan may submit a claim to the United States for certain losses. Lenders are therefore required to follow FHA and VA rules designed to ensure that only mortgages that meet key credit and underwriting criteria are insured or guaranteed by the government.
The settlement announced today resolves allegations that Guaranteed Rate knowingly failed to comply with material program rules that require lenders to maintain quality control programs to prevent and correct underwriting deficiencies, self-report any materially deficient loans that they identify, and ensure that the underwriting process is free from conflicts of interest.
As part of the settlement, Guaranteed Rate admitted that it failed to adhere to the applicable self-reporting requirements, that its FHA underwriters received commissions and gifts in violation of program rules, and that there were instances in which its government underwriters were instructed not to review documents that were relevant to the underwriting decision. Guaranteed Rate further acknowledged that it certified and the government insured and guaranteed loans approved by Guaranteed Rate that were not eligible for FHA mortgage insurance or VA loan guarantees and that HUD and VA would not have insured or guaranteed the loans but for it actions.
While the covered conduct stretched back as far as January 2008, Guaranteed Rate took significant measures to stop the practices, both before and after being notified of the United States’ investigation. It received credit for doing so in connection with the settlement.
“The department works with our partners at HUD and the VA to protect vital federal lending programs,” said Assistant Attorney General Jody Hunt of the Department of Justice’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.”
“This case involved a pattern of serious, systemic and widespread violations under the False Claims Act,” said Rae Oliver Davis, Inspector General, U.S. Department of Housing and Urban Development. “This recovery on behalf of FHA and the American taxpayer should serve as a stark reminder of the potential consequences of not adhering to HUD program rules and to the value of whistleblowers, in pursuing lenders that violate these rules.”
Chris Algieri, Special Agent in Charge, VA Office of Inspector General (OIG), stated: “It is vital that the VA and other federal lending programs are protected and those who violate or circumvent program rules and regulations are held accountable. Today’s civil settlement reinforces VA-OIG’s commitment to enforcing the VA’s requirements for mortgage underwriting and originations to protect taxpayers and veteran homebuyers.”
This investigation was triggered by a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act, which allow private persons, known as “relators,” to file civil actions on behalf of the government and share in any recovery. The relator in this case, a former Guaranteed Rate employee, will receive $2,443,000 of the settlement proceeds. The case is docketed with the U.S. District Court for the Northern District of New York under number 17-cv-637.
This matter was investigated by the U.S. Attorney’s Office for the Northern District of New York, the Department of Justice’s Civil Division, HUD-OIG, HUD, and VA-OIG. The United States was represented by Assistant U.S. Attorney Adam J. Katz and Department of Justice Trial Attorney Christopher Reimer.