Guild Mortgage Co. occupies most floors of this Miramar building on Copley Drive.
Guild Mortgage Co. occupies most floors of this Miramar building on Copley Drive. Image via Google Maps

A San Diego-based mortgage lender has agreed to pay nearly $25 million to resolve allegations that it knowingly approved ineligible loans that later defaulted, resulting in mortgage insurance claims to the Federal Housing Administration, the Department of Justice announced Thursday.

Guild Mortgage Co., which is headquartered in San Diego and has branches across the country, allegedly violated the False Claims Act by knowingly breaching material program requirements while it originated and underwrote mortgages insured by the FHA.

According to the Department of Justice, participants in the FHA mortgage insurance program — such as Guild — can originate and underwrite mortgages without first having the government review the loans for compliance with FHA’s underwriting and origination requirements. If the loan defaults, loan holders can recover certain losses from the United States, according to the DOJ.

The settlement resolves allegations that Guild approved ineligible loans, failed to comply with material program rules that require lenders to maintain quality control and failed to self-report materially deficient loans that it identified.

In a statement Friday, Guild said it entered into the settlement agreement to “avoid the delay, uncertainty and expense associated with continued litigation. Guild did not admit to any liability in connection with the settlement agreement.” 

Mary Ann McGarry, Guild CEO, added: “Guild remains confident in the compliance processes it has in place for FHA-related mortgage lending and other mortgage lending activities and maintains its position that the claims asserted were without merit. With this matter now behind us, Guild looks forward to continuing to help its clients achieve their dreams of home ownership.”

On Thursday, Inspector General Rae Oliver Davis of the U.S. Department of Housing and Urban Development said: “The Federal Housing Administration insurance program is a critical tool that helps hardworking Americans achieve their dream of homeownership. Any abuse of that program is unacceptable and the bad actors will be held accountable.”

According to the DOJ, the settlement resolves allegations brought by Guild’s former head of quality control, Kevin Dougherty, who sued under the whistleblower provisions of the False Claims Act, which allows private parties to sue on behalf of the government for false claims.

Dougherty will receive $4.98 million of the settlement funds, the DOJ said.

“As this settlement demonstrates, we are committed to holding mortgage lenders accountable when they choose to abuse the integrity of vital government programs that are designed to assist homeownership,” said U.S. Attorney Robert Brewer. “We also commend the whistleblower for coming forward, exposing these wrongs, and working with the government investigative team.”

Updated at 3:07 p.m. Oct. 23, 2020

— City News Service