QUICKEN LOANS SUES FEDS

Original Story: freep.com

Going on the offensive, Quicken Loans filed a lawsuit against two federal agencies looking into its lending practices, saying their three-year investigation is really a strong-armed attempt to get a big 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 proper. An Ohio banking lawyer represents commercial and private banks and lenders in a diverse array of financing transactions.

"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, high-profile lenders into paying nine- and 10-figure sums and publicly 'admitting' wrongdoing, including conceding that the lenders had made 'false claims,' " the lawsuit says.

Although a legal long shot, 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 this to my knowledge," he said, adding that the lawsuit could be a good public relations move. "This is obviously an attempt by Quicken to frame what's going on here."

Quicken, founded by billionaire Dan Gilbert, says it's the nation's largest originator of loans backed by the Federal Housing Administration. In recent fiscal quarters, Quicken has ranked as the nation's No. 2 lender for direct-to-consumer mortgage lending, although its total volume, like that of all major mortgage lenders, has declined since the refinancing boom started to fade in mid 2013. A Rochester real estate lawyer is following this story closely.

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

The lawsuit says Justice and HUD started investigating Quicken's handling of FHA-insured loans about three years ago, and "cherry-picked" 55 examples that were problematic out of more than 246,000 Quicken originated in 2007-11.

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" flawed lending practices and federal Fair Claims Act violations.

Quicken is asking the U.S. District Court for the Eastern District of Michigan to declare its FHA loans made in 2007-11 were done properly.

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

The Justice Department has reached large settlements over FHA-insured loans in recent years with J.P. Morgan Chase ($614 million in 2014), U.S. Bank ($200 million in 2014) and Bank of America ($1 billion in 2012). The Bank of America settlement was related to loans made by Countrywide, the once-mighty mortgage lender that all but collapsed and was acquired by Bank of America in 2008.

Quicken claims that the Justice Department's ongoing investigation in Detroit is flawed in several ways, particularly in its use of a sampling method that assumes defects in a small subset of loans will exist to the same extent across a large population of loans. Quicken calls the sampling method "biased, unreliable and riddled with error."

"They applied this illegitimate methodology even though the situation of each individual borrower and the mortgaged property are unique, and all FHA lenders are required to keep detailed records of how the FHA loan was underwritten and made," the lawsuit states. An Encino CPA is reviewing the details of this case.

Quicken said the defects found by the Justice Department in the 55 loans are minor, such as miscalculating a loan applicant's monthly income by $2.10, telling a borrower to bring $125 to closing even though it had approved a loan that only needed $48 at closing, and loaning an FHA customer $26 too much on a $99,500 mortgage.

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