Academy Mortgage settles False Claims Act case for $38.5M

In a False Claims Act whistleblower case that Trump Administration officials attempted to dismiss, Academy Mortgage agreed to pay $38.5 million to resolve allegations of improper origination and underwriting practices for Federal Housing Administration loans.

The whistleblower, Gwen Thrower, will receive over $11.5 million of the settlement proceeds, with the government getting the rest, the Justice Department said. Thrower initiated the suit in 2016 under the qui tam provision of the False Claims Act.

"Despite the U.S. Government asking the court to dismiss the case multiple times, Academy made a business decision to settle the case to mitigate additional costs and disruption of further litigation," an Academy Mortgage statement said. "As stated by the Department of Justice, 'The claims resolved by the settlement are allegations only and there has been no determination of liability.'"

The federal government sought to dismiss this action in 2018, a time when former Department of Housing and Urban Development Secretary Ben Carson looked to dial back FCA enforcement. The government argued that no viable recovery existed, but the motion was rejected by both the trial judge, Edward Chen of the U.S. District Court for the Northern District of California, in August 2018, and the Ninth Circuit Court of Appeals two years later.

"Anytime you entrust government bureaucrats to decide which cases to throw out, you know [you're] deciding to throw taxpayer dollars away," said Thrower's attorney, Nelson Thomas of the law firm of Thomas & Solomon. "The reason it didn't happen this time is because Gwen Thrower, with us as her counsel, fought back."

Thrower alleged Academy had deficiencies in its underwriting for the creditworthiness of the borrower in 1,325 FHA-insured loans originated between Jan. 1, 2008, and April 27, 2017, when the amended suit was filed, the settlement agreement stated.

"Lenders that knowingly cause the government to guarantee loans that are materially deficient put both homeowners and the public [treasury] at risk," said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department's Civil Division in a press release. "The settlement announced today is a result of the relator's efforts to develop this case in litigation and complements the department's actions to prevent abuse of government programs designed to foster home ownership."

The False Claims Act, a law that dates back to the Civil War, establishes liability for a variety of false or fraudulent conduct, including when a person "knowingly presents or causes to be presented a false claim for payment or approval," or "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim," according to the Office of Public Affairs.

Enforcement of the False Claims Act became a tool against mortgage lenders, both bank and non-bank, following the Financial Crisis. It has been cited as one of the primary reasons depositories have pulled out of government-insured lending.

In federal fiscal year 2014, FHA-related enforcement resulted in $3.1 billion in penalties. For fiscal year 2019, settlements slipped to $32.6 million, the vast majority of that from the Quicken Loans (now Rocket Mortgage) case, where the Detroit-based lender openly challenged the government, which was seeking a much larger penalty. 

The Academy case is the first mortgage industry FCA settlement of note since Guild Mortgage agreed to pay $24.9 million without admitting or denying liability in October 2020, just prior to its initial public offering.

Nutter Home Loans cited an ongoing False Claims Act case for its decision to shut its doors in October.