Guild Mortgage sued

San Diego–based Guild Mortgage is being sued by the U.S. Department of Justice for allegedly failing to properly underwrite hundreds of federally backed FHA mortgages between 2006 and 2011, the Department announced Thursday (May 19).

The suit alleges that senior management at the lender "focused on growth and profits and ignored quality," leading to a situation where "Guild knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans….

"Guild grew its FHA lending business by ignoring FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages," allowing uncertified junior underwriters to waive FHA requirements in granting loan approvals to borrowers.

Government officials say they've reviewed 125 internal branch audits conducted by Guild between 2006 and 2012. In 40 percent of those audits, a "significant number" of problems were discovered, ranging from employees' lack of knowledge to willfully ignoring underwriting requirements.

As an FHA "direct endorsement" lender, Guild was allowed to fund FHA loans without review by the Federal Housing Administration or Department of Housing and Urban Development as other lenders must undergo. All loan approvals, however, were supposed to be issued by direct endorsement-certified underwriters, which allegedly did not happen.

"I’m not optimistic about training reminders and individual follow-ups being all that effective," Guild's unnamed head of quality control is quoted as having written in 2013, when the lender finally began to attempt to rein in its practices, which had already begun resulting in defaults and foreclosures on loans guaranteed by federal dollars.

(corrected 5/20, 12:35 p.m.)