Less than a week after Quicken Loans sued the Department of Justice and HUD, accusing them of coercing the Detroit-based lender into making false statements, the DOJ filed a lawsuit against Quicken accusing the lender of improperly originating and underwriting FHA-insured mortgages, according to an announcement from the DOJ on Thursday afternoon.
"Those who do business with the United States must act in good faith, including lenders that participate in the FHA mortgage insurance program," said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division. "To protect the housing market and the FHA fund, we will continue to hold responsible lenders that knowingly violate the rules."
According to the government's complaint, Quicken, the country's largest lender of FHA loans, knowingly submitted or caused the submission of hundreds of improperly underwritten FHA-insured loans as a direct endorsement lender (DEL) from September 2007 through December 2011. HUD relies on DELs to ensure that the loans endorsed for FHA insurance follow proper guidelines, since neither FHA or HUD reviews the underwriting of a loan before it is approved for FHA insurance. If a loan that has been approved under the DEL program ends later defaults, the loan's holder may submit an insurance claim to HUD for the losses caused by the default.
The government alleges that Quicken had a "value appeal" process in place where Quicken would request an inflated value for a home appraisal if the appraisal was too low to approve for a loan, and that the lender granted "management exceptions" in which managers would allow underwriters to break the rules to approve a loan. According to the complaint, Quicken's most senior executives were aware of these practices based on several emails, including one that said, ”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."
The government's complaint alleges that HUD has paid millions of dollars in insurance claims due to defaulted loans that were approved with Quicken's deficient underwriting practices. The complaint also claims that Quicken did not have adequate controls in place to identify the deficient loans, and it failed to report to HUD the deficient loans it did identify.
"The complaint alleges that Quicken approved loans that should not have been approved and submitted them for FHA insurance," HUD Inspector General David A. Montoya said. "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 DOJ is seeking "the amount of the United States' single damages to be proven at trial, plus civil penalties as are required by law in the amount of $5,500 to $11 ,000 per violation of the False Claims Act, post-judgment interest, costs, and such other relief as may be necessary and proper" in addition to "compensatory damages" and "such other relief as the court deems just and proper," according to the complaint.
In response, Quicken accused the DOJ of perpetrating a "witch hunt" against them and of continuing "abusive practices."
"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," Quicken said in a statement on its website. "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." Click here to see Quicken's full statement.
Last week, Quicken sued both HUD and the DOJ, claiming that the government agencies have been trying to bully the company into making "blatantly false" statements and demanding the company pay "an inexplicable penalty or face legal action" following a three-year investigation of the company's underwriting practices.
"After three years of struggling to understand the DOJ's position and methodology," Quicken CEO Bill Emerson said last week, "it is time to ask the court to intervene. It's a shame the DOJ would choose to attack the country's largest and highest quality FHA lender … at the very time our nation needs expanded access to credit for middle-class Americans who benefit most from the FHA program."
Click here to see a copy of the DOJ's complaint against Quicken.