Fed's lawsuit claims Quicken approved 'hundreds' of bad FHA mortgages

Government says downtown Detroit-based lender wrote 'hundreds' of improper loans

DETROIT – The U.S. Department of Justice has filed a lawsuit against the downtown Detroit-based Quicken Loans for "improperly originating and underwriting mortgages insured by the Federal Housing Administration."

The government claims that during a four-year period between 2007 and 2011, Quicken submitted hundreds of improperly underwritten FHA-insured loans.

According to the suit, HUD paid over half a billion dollars on claims from 3,885 Quicken mortgages since September 2007.

"The complaint alleges that Quicken approved loans that should not have been approved and submitted them for FHA insurance," said Housing and Urban Development Inspector General David Montoya in a statement.  "The alleged cost to the FHA insurance fund was millions of dollars and hopefully this serves as reinforcement to Quicken that doing the wrong thing really never is worth it."

The suit alleges that Quicken managers would allow underwriters to break FHA rules in order to approve a loan.

Federal officials also claim that Quicken employees were encouraged to disregard FHA rules and requested inflated home values from appraisers when an initial appraisal was too low to approve a loan.

"Quicken issued hundreds of defective mortgage loans, and left HUD – and the taxpayer – to pay for the loans that defaulted," said U.S. Attorney John Walsh. "Quicken's alleged fraudulent conduct affected communities nationwide."

In one incident highlighted in the government's lawsuit, Quicken approved a loan for a borrower who had requested the refund of her $400 application fee to "feed her family." That borrower subsequently defaulted after five payments, costing taxpayers $93,955.19.

Earlier this week, Quicken filed its own suit against the government claiming that the government were pressuring Quicken and other lenders to admit to fraud they did not commit.

"Quicken Loans appears to be one of the targets (due to its large size) of a political agenda under which the Department of Justice is 'investigating' and pressuring large, high-profile lenders into paying nine and 10-figure sums and publicly 'admitting' wrongdoing including conceding that the lenders had made 'false claims' and violated the False Claims Act," according to the mortgage lender's filing.

The Department of Justice did not respond Monday to Local 4's request for a comment in response to Quicken's lawsuit, but they are saying plenty now with the filing of their own suit.

"The government's complaint alleges that Quicken's senior management was aware of these and other problems," read the DOJ's written statement announcing the case.  "The complaint alleges that Quicken's Divisional Vice President for Underwriting, the second most senior executive in Quicken's Operations Department, wrote in an email discussing the value appeal process that 'I don't think the media and any other mortgage company (FNMA, FHA, FMLC) would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values.'  In another email, the same Divisional Vice President for Underwriting wrote to a group of Quicken executives stating that 40 percent of the management exceptions on FHA's early payment defaults should not have been granted, adding: 'we make some really dumb decisions when it comes to client service exceptions.  Example, purchase loan we pulled new credit and the client stopped paying on almost everything and the scores fell by 100 points, we [still] closed it.'  In yet another email discussing an FHA loan, the Operations Director, a senior level executive, explained that the loan was approved based on 'bastard income,' which he described as 'trying to put some kind of income together that is plausible to the investor even though we know its creation comes from something evil and horrible.'"

Quicken Loans issued the following statement in response to the federal lawsuit:

"Quicken Loans is the FHA's largest lender. By its own objective public reporting, FHA ranks Quicken Loans the highest quality (lowest default rate) lender of any large FHA originator in the United States. The FHA mortgages Quicken Loans originated are projected to generate billions in profits (net of claims) for the government from the insurance premiums on the $40 billion in FHA volume the company has closed since 2007. Today's DOJ filing is simply the continuation of the abusive actions and a make-good on the DOJ's threats since their witch-hunt began three years ago, as detailed in the lawsuit Quicken Loans filed against the DOJ last week.

"The complaint filed today is riddled with inaccurate and twisted conclusions from fragments of a handful of emails cherry-picked from 85,000 documents that the DOJ subpoenaed. Worse than that, the DOJ appears to be basing their entire case on a handful of out-of-context email conversations skimmed from the communication between Quicken Loans employees. These conversations relate to a miniscule number of loans out of the nearly 250,000 FHA mortgages the company has closed over the past seven years.

"The real victims in this unjust claim are the millions of middle class American families who rely on FHA financing to reach their goal of affordable home ownership. For now, Quicken Loans plans to continue offering FHA mortgages to our clients, but like nearly every lender in the country, we will be evaluating the prudence of our continued participation in the FHA program."