Quicken Loans is striking back against government accusations that it issued defective Federal Housing Administration (FHA) loans by filing a pre-emptive lawsuit against the Department of Justice (DOJ) and Department of Housing and Urban Development (HUD).
In its complaint, filed April 17 in the U.S. District Court for the Eastern District of Michigan, Quicken alleges the DOJ has been strong-arming the bank into making public admissions that are “blatantly false,” and paying penalties to avoid the department taking legal action.
“The Constitution provides for checks and balances among the three branches of government. We are hopeful and confident that after examining the facts, the judicial branch will exercise their authority to provide just relief from this misuse of power,” said Quicken Loans CEO Bill Emerson in a statement.
The DOJ has been investigating the nonbank mortgage lender for nearly three years as part of an ongoing probe of other mortgage lenders, including JPMorgan Chase & Co., SunTrust Banks Inc. and U.S. Bancorp, for allegedly originating defective loans in the run-up to the financial crisis.
According to the DOJ, Quicken may have miscalculated borrower income and lent them too much. The department made these allegations after reviewing 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,” Quicken said in a statement addressing its lawsuit.
To date, Quicken has provided the DOJ with more than 85,000 documents, including 55,000 emails, and its employees have participated in “hundreds of hours of depositions,” the lender said. Although the DOJ alleged the loan files were missing key facts and documents, Quicken contended in its complaint that “in many cases the facts were proven and the documents were there.”
Quicken’s complaint gives one example where the DOJ alleged a loan did not meet FHA underwriting guidelines, but the DOJ and HUD’s Office of Inspector General had used the wrong FHA guideline to reach that conclusion. In another case, Quicken was accused of poor underwriting because it miscalculated an FHA applicant’s monthly income, when the error was only $2.10 — and “under FHA guidelines, and common sense, an immaterial difference like this is no bar to insurability,” Quicken argued.
“Three years later, the DOJ inquiry has resulted in the threat of a federal lawsuit based on faulty analysis,” Quicken said in a statement. “The company was left with no alternative but to take this action after the DOJ demanded Quicken Loans make public admissions that were blatantly false, as well as pay an inexplicable penalty or face legal action.”
In its statement, Quicken highlighted its ranking 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.
“In addition, through Quicken Loans’ participation in FHA’s program, the government is projected to receive more than $5.7 billion in net profits from the insurance premiums collected above and beyond claims made from over $40 billion in FHA home loan volume closed by Quicken Loans during the 2007 -2013 time frame,” the Detroit-based lender stated.
What’s more, FHA representatives have visited Quicken’s office to study the company’s underwriting processes and practices to learn how the lender has grown its FHA loan business while maintaining quality control, the lender added.
“After three years of struggling to understand the DOJ’s position and methodology that would warrant the country’s largest and highest-quality FHA lender to make untrue admissions and pay an inexplicable penalty or face public legal action, it is time to ask the court to intervene,” Emerson said. “No threat, including high-profile senseless lawsuits from powerful federal officials, will deter our company and its leadership from doing the right thing. We will stand in defense of our impeccable reputation established by thousands of hardworking ethical team members over our 30-year history.”
Quicken’s complaint asks the court for a declaratory judgment barring federal agents from using the sampling method in its investigation of its FHA loans, an injunction prohibiting the filing of a lawsuit against the lender based on the sampling and a determination that the loans were, indeed, properly underwritten.
The DOJ and HUD have not responded to the lawsuit. The agencies have 21 days from receipt of the complaint to respond.