San Francisco, CA Academy Mortgage Corp. has asked the Northern District of California to dismiss a whistleblower lawsuit brought by a former underwriter, Gwen Thrower. The lawsuit, which was initially filed in 2016, accuses Academy Mortgage of writing shaky FHA-backed mortgage loans to boost the company’s profits. In 2020, the federal government unsuccessfully sought to the lawsuit dismissed in the Ninth Circuit. In 2018, the Northern District had denied a similar motion.
This case has been odd from the start. Rather than simply declining to intervene in the lawsuit, as it is permitted to do under the False Claims Act, the government has actively sought to kill it.
Why? The answer may lie in the murky world of federally insured mortgages.
It may be useful to consider that when the lawsuit was first filed in 2016, the financial crisis of 2008 was still fresh in the minds of many. The crisis was fueled, in part, by wild speculation in mortgage-backed derivative securities.
Gwen Thrower worked as an underwriter for Academy Mortgage. In her Complaint she alleged that the company “encouraged practices that led underwriters to break HUD rules and to approve ineligible loans.” The loans in question were direct endorsement loans. These are generally approved for FHA insurance without direct government review. The evaluation process is fast and largely automated.
The mortgage lender has a...
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