DOJ Sues Quicken Loans Over Improperly Underwritten Mortgages

If you thought that we were done with lawsuits related to the mortgage meltdown, think again. The U.S. Dept. of Justice is suing Quicken Loans, alleging that the lender improperly underwrote hundreds of FHA-insured home loans before and during the housing market crash, resulting in substantial losses for the federal government.

The complaint [PDF], filed in a U.S. District Court in Washington, D.C., alleges violations of the False Claims Act, which allows the government to seek treble damages and penalties from companies that knowingly defraud the administration.

According to the DOJ, between Sept. 2007 and Dec. 2011, Quicken knowingly submitted claims for hundreds of improperly underwritten FHA-insured loans. Company employees allegedly ignored the underwriting rules and requirements for these loans, in an effort to push through as many mortgages as possible while knowing they could make an insurance claim to FHA if the loan went south.

The complaint accuses Quicken of violating FHA rules by falsely inflating appraised values of homes to make sure a loan was approved. The company allegedly granted “management exceptions,” in which managers allowed underwriters to break FHA rules to get a loan approved.

The DOJ contends that these practices were not relegated to a few rogue managers but were something that top company executives were aware of.

“I don’t think the media and any other mortgage company… would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values,” wrote a Quicken VP for Underwriting in an e-mail cited in the complaint.

A second e-mail claims that 40% management exceptions on FHA-insured loans should not have been approved.

“[W]e make some really dumb decisions when it comes to client service exceptions,” reads the e-mail. “Example, purchase loan we pulled new credit and the client stopped paying on almost everything and the scores fell by 100 points, we [still] closed it.”

As a result of this allegedly deceptive underwriting, the Dept. of Housing and Urban Development paid out millions in insurance claims to Quicken over loans that should not have been approved.

Like the one loan applicant who had made multiple overdrafts on his bank account during the application process and who requested that Quicken refund his $400 application fee so he could feed his family. The government contends that this applicant was obviously in no financial shape to take on a mortgage, but his loan was approved anyway. According to the DOJ, this homeowner only made five mortgage payments before falling behind. HUD ultimately paid nearly $94,000 in insurance to Quicken over this mortgage.

Additionally, the complaint contends that there are many more loans from this time period that are currently 60 days delinquent and in danger of foreclosure, meaning Quicken will be filing insurance claims on these mortgages.

“Quicken violated HUD’s quality standards when obtaining HUD insurance for mortgage loans,” said U.S. Attorney John Walsh of the District of Colorado, whose office helped to lead the investigation. “Quicken issued hundreds of defective mortgage loans, and left HUD – and the taxpayer – to pay for the loans that defaulted. Quicken’s alleged fraudulent conduct affected communities nationwide. This case is the latest step in our commitment to hold accountable mortgage lenders who profit by taking advantage of HUD insurance and issuing defective loans that do not meet HUD’s standards.”

The NY Times notes that Quicken recently filed a lawsuit of its own against the DOJ and HUD, claiming the lender was pressured into making admissions that were “blatantly false” and was required to pay an allegedly unjustified penalty.

by Chris Morran via Consumerist