Quicken sues Justice Department over FHA-backed loan investigation

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Going on the offensive, Quicken Loans has filed a lawsuit against two federal agencies investigating its lending practices, claiming their three-year investigation is really a heavy-handed bid to secure a major settlement from the Detroit-based company. .

Quicken filed its lawsuit late last week against the Justice Department and the U.S. Department of Housing and Urban Development, asking a court to find that its lending practices involving FHA-insured loans were appropriate.

“Quicken Loans appears to be one of the targets (due to its large size) of a political agenda under which the DOJ is “investigating” and pressuring large, blue-chip lenders to pay sums to nine and ten figures and “publicly admit ‘wrongdoing’, including admitting that the lenders made ‘false statements,'” the lawsuit states.

Although it is a lengthy legal plan, the lawsuit demonstrates Quicken’s penchant for aggressively defending its reputation. It’s rare for companies to file preemptive lawsuits against the government, said Matthew Schwartz, a former assistant U.S. attorney who is now a partner at New York-based Boies, Schiller & Flexner.

“Sometimes the targets of investigations go on the offensive, including by filing lawsuits, but nothing like that that I know of,” he said, adding that the lawsuit could be a good public relations stunt. “This is obviously an attempt by Quicken to frame what’s going on here.”

Quicken, founded by billionaire Dan Gilbert, says it is the nation’s largest loan originator backed by the Federal Housing Administration. In recent fiscal quarters, Quicken has ranked as the nation’s second-largest lender for direct-to-consumer mortgages, although its total volume, like that of all major mortgage lenders, has declined since the refinancing boom began to wane. fade in mid-2013.

A Quicken Loans spokesperson did not respond to requests for comment on Monday.

The lawsuit says Justice and HUD began investigating Quicken’s handling of FHA-insured loans about three years ago, and “selected” 55 problematic examples out of more than 246,000 Quickens originating from 2007-11.

Dan Gilbert is the founder and president of Quicken Loans.  Photo taken in April 2015

The lawsuit says justice is threatening a high-profile lawsuit involving a much larger number of loans unless the company agrees to pay a large settlement and “admit” to faulty lending practices and violations of federal law. on equitable claims.

Quicken is asking the U.S. District Court for the Eastern District of Michigan to declare that its FHA loans made in 2007-2011 were properly made.

A Justice Department spokesperson declined to comment on an ongoing investigation.

The Department of Justice has entered into major FHA-insured loan settlements in recent years with JP Morgan Chase ($614 million in 2014), US Bank ($200 million in 2014), and Bank of America (1 billion in 2012). The Bank of America settlement was tied to loans made by Countrywide, the once mighty mortgage lender that all but collapsed and was acquired by Bank of America in 2008.

Quicken says the Justice Department’s ongoing investigation in Detroit is flawed in several respects, particularly in its use of a sampling methodology that assumes that defaults in a small subset of loans will exist in the same extent in a large lending population. Quicken calls the sampling method “biased, unreliable, and riddled with errors.”

“They applied this illegitimate methodology even though each individual borrower and mortgaged property’s situation is unique, and all FHA lenders are required to keep detailed records of how the FHA loan was originated and granted,” says the trial.

Quicken said the flaws found by the Justice Department in the 55 loans are minor, such as miscalculating a loan applicant’s monthly income of $2.10, telling a borrower to bring $125 to closing even though he had approved a loan that only required $48 at closing, and lending an FHA client $26 too much on a $99,500 mortgage.

The FHA program provides mortgage loan insurance to lenders such as Quicken Loans, which can make a claim against a federal fund within HUD if a loan goes bad. FHA loans are popular among low-income or low-credit borrowers who might have trouble qualifying for a conventional mortgage.

Contact JC Reindl: 313-222-6631 or [email protected] Follow him on Twitter @JCReindl.

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