Quicken Loans has filed a preemptive lawsuit against the U.S. Department of Justice (DOJ) and the U.S. Department of Housing and Urban Development seeking relief from a DOJ request that the company publicly admit to issuing defective Federal Housing Administration (FHA) loans and pay triple penalties for those defects in order to avoid being sued.
Although the company – one of the largest non-bank mortgage lenders in the U.S. – says in a statement that it has been under investigation by the DOJ for nearly three years, it has not revealed any details about the DOJ's allegations, except to say that the loan defects in question were uncovered as a result of a sampling of 55 of about 246,000 loans.
The defects included miscalculating a borrower's income by $17 and lending a borrower $26 too much, Quicken says in its suit filed in U.S. District Court for the Eastern District of Michigan.
In the filing, company officials say Quicken is being targeted as part of a ‘political agenda under which the DOJ is 'investigating' and pressuring large, high-profile lenders into paying nine- and 10-figure sums and publicly 'admitting' wrongdoing.’
The DOJ reportedly threatened to file the lawsuit unless Quicken Loans publicly admitted that its lending practices were significantly flawed.
Detroit-based Quicken says the DOJ has subpoenaed more than 85,000 loan documents since its investigation began almost three years ago.
Based on the company's statement, it would seem that the DOJ was only able to find a small number of loans with defects, and of those, a majority, if not all, were immaterial in nature – meaning they would have little to no impact on whether the loan would have funded.
Over the past few years, the DOJ has brought numerous lawsuits against mortgage lenders, including J.P. Morgan Chase & Co., SunTrust Banks Inc. and U.S. Bancorp, for originating defective loans in the run-up to the financial crisis. However, because Quicken isn't a public company, it isn't required to disclose whether it is being investigated nor what it is being accused of.
‘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,’ says Bill Emerson, CEO of Quicken Loans, in a statement. ‘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 hard-working ethical team members over our 30-year history.’
Company officials say they have provided the DOJ with more than 85,000 documents, including 55,000 emails, in connection with the investigation. In addition, the DOJ has conducted hundreds of hours of depositions from numerous Quicken Loans team members.
In the statement, Quicken officials say the DOJ's lawsuit is based on ‘faulty analysis of a miniscule number of cherry picked mortgages from the nearly 250,000 FHA loans the company has closed since 2007.’
‘It's a shame the DOJ would choose to attack the country's largest and highest quality FHA lender providing government lending for homebuyers and home owners 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,’ Emerson says. ‘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.’
In its statement, Quicken Loans says it was ‘left with no alternative but to take this action.’ The suit is one of the first of its kind to be filed since the DOJ and regulators starting cracking down on mortgage lenders following the housing crisis.
The company points out that not only is it one of the largest FHA lenders, it is also ‘ranked the highest quality (lowest default rate) lender of any FHA originator in the country,’ based on the FHA's own public reporting.
‘According to the FHA's publicly available data, Quicken Loans maintains the lowest compare ratio – the default rate of a single lender compared to FHA's total mortgage portfolio,’ the company says in its statement. ‘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.’