Guaranteed Rate will pay $15.06 million to settle allegations that it violated Federal Housing Administration and Department of Veterans Affairs lending rules.
The Department of Justice announced Wednesday that Guaranteed Rate, one of the nation’s largest consumer direct lenders, has reached an agreement to settle charges that the company “knowingly violating material program requirements when it originated and underwrote mortgages” insured by the FHA or guaranteed by the VA.
Companies that participate in FHA and VA loan programs, like Guaranteed Rate, are given the authority to originate and underwrite mortgages without needing the government to review the loans for compliance with each agency’s underwriting and origination requirements.
Under the rules of the program, lenders are required to follow FHA and VA rules to ensure that only mortgages that meet “key credit and underwriting criteria” are insured or guaranteed by the government.
And according to the DOJ, Guaranteed Rate allegedly violated those rules.
In a statement, the DOJ said that it claimed 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,” the DOJ said.
The DOJ also said that Guaranteed Rate admitted 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,” adding that the loans would not have been approved for FHA or VA insurance with Guaranteed Rate’s actions.
In a statement provided to HousingWire, Guaranteed Rate said that the issues in question involved a “limited number of loans,” and said that none of the supposed violations were done purposefully.
“Guaranteed Rate is committed to doing the right thing and serving the needs of our customers,” the company said in a statement.
“We come from a good place. We always have. Mortgage lending is a complicated and highly regulated business, and government lending guidelines are especially complex,” the company continued. “In this matter, the DOJ helped us identify some issues that had already been corrected or were immediately corrected once identified. At no time did any audit review highlight any of these issues previously. We never intentionally violated any guidelines, that’s just not who we are.”
The DOJ does not disclose the time period in which the alleged conduct took place, stating only that the allegations stretch back to 2008.
But the DOJ stated that Guaranteed Rate took “significant measures” to stop the practices in question, both before and after being notified that the government was investigating its lending practices, which the government looked favorably upon.
“Lenders participating in mortgage programs backed by taxpayers must follow rules designed to protect both program integrity and homeowners,” said U.S. Attorney Grant Jaquith for the Northern District of New York. “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.”
Guaranteed Rate, for its part, states that the DOJ’s statements on the matter could prove problematic for the industry as a whole.
“At the same time, the statement from the DOJ feels dangerous to us,” the company said.
“We have always operated with a customer-first approach, and a commitment to doing the right thing by adhering to all guidelines and regulations,” the company continued. “We believe most of our peers in the industry do the same. Scenarios just like these have driven many lenders away from operating in this space, leaving the rest of us operating from a position of fear. This results in fewer options for customers, not more.”
According to the DOJ, the allegations were brought to light by former Guaranteed Rate employee Anthonitte Carranza under the whistleblower provisions of the False Claims Act, which allow people to sue on behalf of the government for false claims and to receive a share of any recovery.
As such, Carranza will receive $2,443,000 as her share of the government’s recovery.
“This case involved a pattern of serious, systemic and widespread violations under the False Claims Act,” said Department of Housing and Urban Development Inspector General Rae Oliver Davis. “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.”
The settlement is one of the first, if not the first, since the government announced last year that it would relax its usage of the False Claims Act to extract massive settlements out of lenders.
In closing, Guaranteed Rate stated that it hopes this matter will prove to be a positive step in the long term.
“Our relationship with HUD has always been positive, but we want to build a stronger relationship with their team, as we want to be an even better partner,” Guaranteed Rate said.
“We’re grateful for the cooperative process we engaged in together to resolve this matter. We appreciate all that HUD and VA are doing to enable access to affordable housing for so many Americans, especially during challenging times like these,” the company continued.
“We look forward to collaborating with them in the future to continue to advance the industry and do what’s best for customers. We are proud of our strong relationship with our borrowers, investors and government partners,” the company concluded. “This experience has made us better, setting us up for an even stronger and brighter future.”
[Update: This article is updated with a statement from Guaranteed Rate.]