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The Guild Mortgage Co. Settles Governments’ Federal Lawsuit Asserting Mortgage Underwriting Fraud Hours Before IPO Launch

Guild Mortgage remains popular with gullible and unread borrowers. In 2019 J.D. Power ranked it among the most trusted originators and the most trusted mortgage servicers in the US.

Department of Justice, Office of Public Affairs
FOR IMMEDIATE RELEASE

Wednesday, October 28, 2020

Guild Mortgage Company to Pay $24.9 Million to Resolve Allegations it Knowingly Caused False Claims for Federal Mortgage insurance

Guild Mortgage Company has agreed to pay the United States $24.9 million to resolve allegations that it violated the False Claims Act by knowingly breaching material program requirements when it originated and underwrote mortgages insured by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), the Department of Justice announced today. Guild Mortgage Company is headquartered in San Diego, California, with branches across the United States.

“Ensuring the integrity of federal lending programs is important to keeping those programs financially sound,”

said Acting Assistant Attorney General Jeffrey Bossert Clark of the Department of Justice’s Civil Division.

“Together with our partners at HUD, we have worked hard to hold accountable FHA lenders that knowingly and materially violate program requirements that help Americans achieve the dream of home ownership.”

“The United States is committed to providing Americans opportunities to own their own homes,”

said Acting U.S. Attorney for the District of Columbia Michael R. Sherwin.

“This settlement reflects the diligent work of officials from the Department of Justice and HUD to ensure that the programs that provide those opportunities are operated with integrity and in accordance with requirements established by law.”

“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 for the Southern District of California.

“We also commend the whistleblower for coming forward, exposing these wrongs, and working with the government investigative team.”

“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,” said Rae Oliver Davis, U.S. HUD Inspector General. “This case highlights the effectiveness and the importance of whistleblower programs.”

Participants in the FHA mortgage insurance program are authorized to originate and underwrite mortgages without first having the government review the loans for compliance with the agency’s underwriting and origination requirements.

If an FHA-insured loan defaults, the holder of the loan can then recover from the United States for certain losses. Lenders must follow FHA rules to ensure that only mortgages that meet critical credit and underwriting criteria are insured by the government.

The settlement announced today resolves allegations that Guild Mortgage Company knowingly approved materially ineligible loans that later defaulted and resulted in claims to FHA for mortgage insurance, failed to comply with material program rules that require lenders to maintain quality control programs to prevent and correct underwriting deficiencies, and failed to self-report materially deficient loans that it identified.

The agreement resolves allegations brought by the former head of quality control at Guild Mortgage Company, Kevin Dougherty, under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private parties to sue on behalf of the government for false claims and to receive a share of any recovery. The Act permits the United States to intervene in such a lawsuit, as it did in part here.

Dougherty will receive $4,980,000 as his share of the government’s recovery.

The investigation, litigation, and settlement were the result of a coordinated effort among the Commercial Litigation Branch of the Department of Justice’s Civil Division, the U.S. Attorneys’ Offices for the District of Columbia and the Southern District of California, HUD, and HUD-OIG.

The qui tam case is captioned United States ex rel. Dougherty v. Guild Mortgage Company, Civ. A. No. 16-2909 (S.D. Cal.).

The claims asserted against the defendant are allegations only, and there has been no determination of liability.

Hours before its IPO fizzled, Guild Mortgage agreed to pay $25M to settle federal lawsuit

Lender hoped to raise up to $162M in the IPO on Thursday; instead it raised $98M

Originally Published: October 23, 2020 |  Republished by LIT: March 10, 2021

Just before its stock debuted at a disappointing $15 a share, Guild Mortgage settled a federal lawsuit that claimed the lender knowingly breached legal requirements when it originated and underwrote FHA loans.

Guild agreed to settle the federal lawsuit, brought by the Department of Justice, for just under $25 million, the government said Thursday. It did not admit to any wrongdoing.

The lawsuit, brought initially in 2016, alleged that Guild knowingly originated and underwrote mortgages that didn’t meet the program requirements of the FHA. Those loans, originated between 2007 and 2011, defaulted and led to claims to the FHA for mortgage insurance. Guild failed “to comply with material program rules that require lenders to maintain quality control programs to prevent and correct underwriting deficiencies, and failed to self-report materially deficient loans that it identified,” the government 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,” U.S. Attorney Robert Brewer for the Southern District of California said in a statement. “We also commend the whistleblower for coming forward, exposing these wrongs, and working with the government investigative team.”

The whistleblower, former head of quality control at Guild, Kevin Dougherty, will receive $4.98 million of the $24.9 million settlement.

In a statement, Guild said it “entered into this settlement agreement to avoid the delay, uncertainty, and expense associated with continued litigation.”

“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,” said Mary Ann McGarry, Guild’s CEO.

The settlement occurred just before Guild and its private equity owners McCarthy Capital Partners made a debut on the public markets.

Through Guild Holdings, the lender’s management and the private equity investors planned to issue 8.5 million shares of Class A stock, priced between $17 and $19. It would have raised approximately $153 million. Instead, Guild sold just 6.5 million shares at $15 apiece, raising $98 million. The money raised will not be going to Guild Mortgage; management and McCarthy are the beneficiaries of the IPO.

In an interview on Thursday, McGarry, the longtime CEO said that company management and McCarthy were in it for the long haul, even if the IPO didn’t meet expectations.

“We don’t look at just today, it’s a snapshot in time,” she said in an interview. “We’re focused on the future, and I can only control what I do best, and that’s being CEO and running the company and producing consistent, profitable growth as I have the last 12 years.”

Through the six months ending June 30, Guild, which does nearly all of its business through the retail channel, posted a profit of $110.8 million, up from a $47 million loss in the first six months of 2019. It originated $14.6 billion in loans during the first half of the year. Company president Terry Schmidt said the recapture rate this year was 67%.

Per the prospectus, 55% of mortgages originated in the first half of the year were refinancings. Guild retained servicing on 85% of its loans. Gain-on-sale margin was a very healthy 504 bps, up from 383 bps year-over-year.

For the third quarter, origination volume is expected to come in at $10 billion, which should yield a net income between $178 million and $187 million.

Guild has retail locations across 31 states and, according to McGarry, the company is interested in expanding into new territories, potentially through additional acquisitions.

This story was updated to include comment on the settlement from Guild.

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United States Files Lawsuit Alleging That Guild Mortgage Improperly Originated and Underwrote FHA-Insured Mortgage Loans

This case is another example of the  Justice Department’s continued efforts to ensure that lenders that participate in the FHA mortgage insurance program act in good faith and conduct appropriate due diligence when committing the United States to insure home loans….

The Guild Mortgage Co. Settles Governments’ Federal Lawsuit Asserting Mortgage Underwriting Fraud Hours Before IPO Launch
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