By Joe Light
The U.S. Justice Department sued Quicken Loans Inc., alleging
the mortgage lender lied to the government when making loans backed
by the Federal Housing Administration.
The Justice Department said that between September 2007 and
December 2011, Detroit-based Quicken originated hundreds of
FHA-insured loans that shouldn't have been eligible for federal
backing. Among other allegations, the complaint said Quicken pushed
back on appraisals when a home got too low a valuation to qualify
for a loan, and that Quicken's own management team was concerned
about some of its loan-underwriting practices.
"Those who do business with the United States must act in good
faith, including lenders that participate in the FHA mortgage
insurance program, " said Justice Department Principal Deputy
Assistant Attorney General Benjamin C. Mizer. "To protect the
housing market and the FHA fund, we will continue to hold
responsible lenders that knowingly violate the rules."
In a statement, Quicken Loans said the Justice Dept.'s lawsuit
relied on "on a handful of out-of-context email conversations
skimmed from the communication between Quicken Loans
employees."
"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," Quicken Loans' statement
said.
Quicken Loans last year surpassed Wells Fargo & Co. to
become the biggest FHA lender by volume, issuing $6.7 billion of
FHA loans, according to trade publication Inside Mortgage Finance.
Unlike larger traditional lenders, such as Wells Fargo and Bank of
America Corp., Quicken isn't a bank.
The Justice Department complaint comes less than a week after
Quicken filed a pre-emptive lawsuit against the department and the
U.S. Department of Housing and Urban Development, alleging the
government had attempted to twist its arm into admitting to claims
of fraud that Quicken executives say it didn't commit.
That claim alleged the Justice Department based its large
settlement demands on a sampling of just 55 of 246,000 loans, and
that the defects included minor errors such as miscalculating a
borrower's income by $17 and lending a borrower $26 too much.
After filing its lawsuit against the Justice Department last
week, Quicken Chief Executive Bill Emerson in a statement said,
"It's a shame the DOJ would choose to attack the country's largest
and highest-quality FHA lender providing government lending for
home buyers and homeowners across all 50 states at the very time
our nation needs expanded access to credit for middle-class
Americans who benefit most from the FHA program."
The Justice Department has reached several multimillion-dollar
settlements with other large lenders, some of which have said they
are being unfairly punished for minor transgressions rather than
material mistakes.
Thursday's new complaint alleges the faulty underwriting
practices caused HUD to pay millions of dollars in insurance
claims. The lawsuit claims Quicken violated the False Claims Act,
which would make the lender liable for treble damages.
Too-generous appraisals were at the center of the Justice
Department's allegations. The complaint cited a Quicken vice
president's email regarding the company's appraisal processes that
said: "I don't think the media or any other mortgage
company...would like the fact we have a team who is responsible to
push back on appraisers."
The lawsuit also said that in one instance, Quicken approved a
loan for a borrower who had "requested a refund of the $400
mortgage application fee so that the borrower would be able to feed
her family."
The Justice Department since the financial crisis has reached
several settlements with major lenders, including J.P. Morgan Chase
& Co., SunTrust Banks Inc. and U.S. Bancorp, related to poorly
underwritten FHA loans.
Some lenders have said the harsh and uncertain penalties have
led them to pull back from the FHA program, which could have the
effect of limiting consumers' access to mortgages, though it has
also led many small lenders to pick up market share.
Write to Joe Light at joe.light@wsj.com
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