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U.S. Sues Dan Gilbert’s Quicken Loans Over Mortgage Fraud, One Cause of Detroit 'Blight'

voiceofdetroit.net | April 26, 2015

By Amy Swinderman

A three-year battle between the U.S. Department of Justice (DOJ) and Quicken Loans came to a head yesterday when the department filed a lawsuit alleging the Detroit-based lender violated the False Claims Act by improperly originating and underwriting mortgages insured by the Federal Housing Administration (FHA).

The lawsuit is the latest volley in a longstanding government probe of Quicken’s participation in the FHA insurance program as a direct endorsement lender. According to the DOJ, from 2007 to 2011, Quicken knowingly submitted claims for hundreds of improperly underwritten FHA-insured loans, encouraged employees to disregard FHA rules and requested inflated property appraisals.

As a result of these alleged actions, the Department of Housing and Urban Development (HUD) paid “millions of dollars” of insurance claims, and many additional loans that have become at least 60 days delinquent could result in further HUD claims, the DOJ said.

What’s more, the department claims that Quicken managers were well aware of the problems and even granted “management exceptions” whereby managers would allow underwriters to break an FHA rule in order to approve a loan.

According to the DOJ’s complaint, Quicken’s divisional vice president for underwriting — the second-highest senior executive in the lender’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 individual told a group of Quicken executives 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 another email discussing an FHA loan, the operations director 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.”

The DOJ’s complaint further alleges that Quicken failed to implement an adequate quality-control program to identify deficient loans, and that Quicken failed to report to HUD the loans it did identify. Despite its obligation to report to HUD all materially deficient loans, “Quicken concealed its deficient underwriting practices and failed to report a single underwriting deficiency to the agency,” the DOJ alleges.

“As the complaint alleges, Quicken violated HUD’s quality standards when obtaining HUD insurance for mortgage loans,” U.S. Attorney John Walsh of the District of Colorado, whose office helped to lead the investigation, said in a statement. “Quicken issued hundreds of defective mortgage loans, and left HUD — and the taxpayer — to pay for the loans that defaulted. Quicken’s alleged fraudulent conduct affected communities nationwide. This case is the latest step in our commitment to hold accountable mortgage lenders who profit by taking advantage of HUD insurance and issuing defective loans that do not meet HUD’s standards.”

Walsh’s office conducted the investigation along with HUD and its Office of Inspector General and the DOJ Civil Division’s Commercial Litigation branch.

Quicken quickly responded to the DOJ’s lawsuit, calling the filing “simply the continuation of the abusive actions and a make-good on the DOJ’s threats since their witchhunt began three years ago.” Just last week on April 17, the lender filed a lawsuit of its own against the DOJ and HUD, alleging they have been strong-arming it into making false public admissions and either agreeing to pay a fine or face legal action.

According to Quicken, the DOJ’s investigation is based on a small sample of 55 loans, “a minuscule number of cherry-picked mortgages from the nearly 250,000 FHA loans the company has closed since 2007.”

“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,” the company said in a statement. “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.”

Quicken has also noted its position as the nation’s largest FHA lender and said it has originated the agency’s best-performing loan portfolio, with the lowest default rate of any single lender compared to FHA’s total mortgage portfolio. However, in light of these events, the lender said, “We will be evaluating the prudence of our continued participation in the FHA program.”

“The irrational and baseless claims by this powerful federal agency will be exposed in federal court,” Quicken said. “We are confident that after examining the facts, the judicial branch will clearly see the outrageous actions of the DOJ and exercise its authority to end this agency’s misuse of power.”

The False Claims Act, also called the Lincoln Law, imposes liability on persons and companies who defraud governmental programs. Federal penalties can total three times of amount of the claim, plus fines of $5,500 to $11,000 per claim.

 

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