Dan Gilbert says that the lawsuit was filed because Quicken refused to give in to pressure to pay a large settlement and admit wrongdoing.
Quicken Loans founder Dan Gilbert on Friday ridiculed the Department of Justice's allegations that his company violated the law when writing some government-backed mortgages, saying the investigation was shoddy and designed to extract a big settlement from the Detroit-based mortgage giant. A Nashville finance lawyer is following this story closely.
"This is what happens when you dare to stand up for justice and the truth to the Department of Justice," Gilbert said on a conference call Friday evening with the Free Press. "This was an attempt to embarrass us and continue to pressure us to write enormous size checks to settle (allegations) to make them go away, and to admit things that did not occur."
Following a nearly three-year investigation, the Justice Department on Thursday sued Quicken Loans claiming that it improperly originated hundreds of mortgages insured by the Federal Housing Administration between September 2007 and December 2011 by making false claims on borrowers' applications.
Quicken denies the allegations and claims flaws in investigators' findings and methodology.
On Friday, Gilbert and other Quicken executives on the conference call said the Justice Department's lawsuit contained numerous factual errors and omissions and took quotations from internal Quicken e-mails out of context simply for shock value.
For instance, the Justice Department in its lawsuit cites an e-mail written by Quicken's then-operations director using the term "bastard income" to describe income information from a borrower for an FHA loan. The director described it in the e-mail as "trying to put some kind of income together that is plausible to the investor even though we know its creation comes from something evil and horrible." A Cherry Hill finance lawyer is reviewing the details of this case.
Gilbert said Friday that the lawsuit omits the crucial piece of information that Quicken actually denied the loan referred to in the e-mail. "We didn't do the loan — they're making our case for us," said Jay Farner, Quicken Loans president.
The Justice Department has said that it doesn't comment on pending lawsuits and did not respond to an e-mail seeking comment for this story.
Gilbert said the lawsuit was filed because Quicken refused to give in to pressure to pay a large settlement and admit wrongdoing.
"They're talking about an investigation that ran for three full years, 85,000 documents subpoenaed … and this is what they come up with — a few anecdotes and a few fragments of chains of e-mails taken out of context," Gilbert said.
Suspecting that the government was about to file its suit, Quicken filed a rare pre-emptive lawsuit last week against the Justice Department, asking a judge to rule that the loans in question were proper.
In its complaint against Quicken, the Justice Department claims the company's management emphasized quantity over quality when approving and underwriting FHA-insured mortgages. Justice claims it resulted in Quicken employees inflating borrowers' income or the appraised values of houses with the goal of getting otherwise unqualified clients into mortgages.
The lawsuit claims that Quicken, which is a non-bank lender, did not worry about the loans going bad because they were guaranteed by the government. The result, the Justice Department says, was hundreds of improperly underwritten FHA loans that borrowers did not repay and that the Department of Housing of Urban Development had to cover.
The lawsuit does not give a monetary figure for HUD's losses related to improper Quicken loans.
Justice's lawyers have sprinkled the lawsuit with provocative statements attributed to Quicken insiders and pulled from internal company e-mails or testimony.
- The lawsuit says one e-mail shows employees discussing "fudging" a borrower's income to gain approval for an FHA loan. But Farner, the Quicken president, said the investigators misinterpreted the word and that fudging actually means calculating a person's income by hand in this instance, rather than using a computer model. Sometimes an applicant has nontraditional income that doesn't fit neatly into a computer program, Farner said. "But absolutely the income calculated was accurate and correct for that loan."
- The same director wrote in another e-mail to senior management regarding a different FHA loan and borrower, "I was able to fudge her job income and get that up a bit."
- In another e-mail exchange, the director purportedly described how Quicken approved a mortgage made up of "lousy" parts that "when added up as a whole ... we would be hard pressed to lend this guy a dime out of our pocket.
- And in responding in another e-mail to Quicken CEO Bill Emerson's question regarding a particular loan — "where is the upside on this one?" — the director replied that "the only upside here is we have FHA insurance."
The lawsuit also cites several anecdotes:
- A Michigan resident sought a cash-out refinance in January 2008 for an existing home. Their property was appraised at $180,000, which would give the borrower $113,000 in cash at the closing of the loan. The lawsuit says a Quicken staffer wrote in loan journal notes that the borrower "is hoping for $115k back at close." The lawsuit claims that Quicken asked the appraiser to raise the appraisal to $185,000 to produce the desired cash — a forbidden practice, according to the Feds. The higher-value loan closed, and the borrower ultimately defaulted on the first payment. The government paid out an insurance claim of $204,208.
- The Feds allege Quicken "ignored red flags" in the case of a Minnesota mom who was unable to pay her FHA mortgage approved in September 2008, prompting a $93,955.19 FHA insurance claim. The borrower's bank account showed multiple overdrafts. And during the application process, she asked for a refund of the $400 mortgage application fee so that she could be able to feed her family.
- Quicken also failed to note how the borrower violated more HUD requirements by using a $200 check from an unknown person to serve as a deposit. The borrower made five payments before going delinquent.
Today Quicken Loans is ranked as the nation's No. 2 lender for direct-to-consumer mortgage lending and is the top originator of FHA-backed loans. But back in 2007 — the earliest year included in the Justice Department's investigation — Quicken was barely a top 25 mortgage lender. A Detroit real estate lawyer is following this story closely.
"It is surprising that they're going after them," said Guy Cecala, publisher of Inside Mortgage Finance, "and it clearly seems to be linked to the fact they've become a top 3 lender — that puts a bit of a target on their back."
"What we've seen after the foreclosure crisis is if you look hard enough you can find problems with just about any loan," he said.