The U.S. Department of Justice’s (DOJ) case against Quicken Loans over the alleged faulty underwriting of Federal Housing Administration (FHA) loans has been transferred to eastern district court in downtown Detroit, the non-bank mortgage lender announced on Tuesday.
Judge Reggie B. Walton, a senior federal judge of the U.S. District Court for the District of Columbia, reportedly rejected the DOJ’s “bewildering” arguments that the case should be heard in Washington, D.C.
One of those arguments, Quicken says in a statement, was that the company’s sponsorship of a Washington, D.C.-area charitable PGA Tour outing that supports U.S. troops justified hearing the case in D.C.
Attorneys for Quicken successfully argued that the case should be heard in Detroit, where the lender has its headquarters. The vast majority of Quicken’s loan processing and underwriting operations are in Detroit.
In a statement, Quicken says it is “confident that the Eastern District Court will find the remainder of the DOJ’s arguments just as puzzling.”
In its complaint against Quicken filed in April 2015, the DOJ alleges that the online lender instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages.
For example, the company allegedly had a “value appeal” process in place whereby company managers would ask appraisers to sometimes inflate the value of homes when the value came in too low in order for the borrower to qualify for an FHA-backed loan, the DOJ alleges in its suit. Quicken also allegedly granted “management exceptions” whereby managers would allow underwriters to break an FHA rule in order to approve a loan.
Quicken, which at one point was considering exiting the FHA program as a result of the suit, is a direct endorsement lender for the FHA and thus has the authority to originate, underwrite and certify mortgages for FHA insurance. The loans in question were originated from September 2007 through December 2011.
The complaint further alleges that company management knew about the aforementioned underwriting practices but turned a blind eye on them and that it lacked proper quality control processes.
In response, Quicken filed a preemptive lawsuit challenging the complaint. In that complaint, the lender asserts 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.
In its preemptive suit, Quicken says it 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.
In a statement this week, the lender says it still plans to fight the DOJ’s complaint and points out numerous reasons why it thinks the case should be dismissed. Chief among those is that Quicken – prior to the suit – was one of the largest FHA lenders in the U.S., and yet, at the same time, the overall performance of its FHA loans was better than the overall performance of loans originated by other FHA lenders.
“According to the FHA’s own data, mortgages originated by Quicken Loans have the smallest percentage of claims among lenders closing relevant volume,” the lender says in its statement. “It is incongruent for the government to assert that Quicken Loans had a sweeping ‘scheme’ to make bad loans, when, by the FHA’s own account, Quicken Loans originated the best-performing loans in the portfolio (three-times better than the FHA’s overall portfolio).”
Quicken asserts that part of the reason the FHA’s Mortgage Mutual Insurance Fund is performing so well, as of late, is partly because of the quality of the loans it underwrote.
“[The FHA’s] total pool of business … is expected to continue to profit enormously in years to come due to its stellar quality and loan performance,” the firm says.
Quicken questions why the DOJ would bring “litigation against the nation’s largest FHA mortgage lender that also has the nation’s lowest default rates.”