Quicken Loans, the third biggest mortgage lender in the U.S. is considering an exit from Federal Housing Administration (FHA) lending programs as the company sits mired in a legal dispute with the Department of Justice (DOJ) over false claims allegations, according to a Reuters exclusive report.
The parent company of top-10 reverse mortgage lender One Reverse Mortgage, Quicken told Reuters that it is considering baking away from government lending, or scaling back its exposure, as a result of the company’s ongoing lawsuit with the DOJ, which alleges that Quicken violated standards for underwriting and originating FHA-insured loans.
Quicken is one of four major lenders in the U.S. that is grappling with the FHA over how the agency handles loans that sour and interprets its lending rules, including JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC) and Wells Fargo & Co. (NYSE: WFC).
While the other three major banks have scaled back their lending through FHA, now Quicken is “looking at bowing out as well,” company founder and Chairman Dan Gilber told Reuters. Quicken loans is also considering “cutting the risk it takes in the program,” he added.
Specifically, FHA is arguing with lenders over when the agency is entitled to back out of the insurance that its program provides. Lenders like Quicken, however, say that the FHA demands repayments for “even the most minor of mistakes that a bank may make when extending a loan, to force them to bear the agency’s losses, making the government’s insurance an illusion,” Reuters writes.
The lawsuit against Quicken earlier in April arrived just days after the company filed its own suit against the FHA and the Department of Housing and Urban Development. In its reasoning for taking this action, Quicken said the DOJ demanded the company make public admissions that were “blatantly false, as well as pay an inexplicable penalty or face legal action.”
The lawsuit followed three years of probing by the DOJ into Quicken, which provided the government with more than 85,000 documents, including 55,000 emails, along with “hundreds of hours” of depositions from numerous Quicken Loans employees.
“After three years of struggling to understand the DOJ’s position and methodology that would warrant the country’s largest and highest qualify FHA lender to make untrue admissions and pay an inexplicable penalty or face public legal action, it is time to as the court to intervene,” said Quicken Loans CEO Bill Emerson in a statement at the time of the initial lawsuit filing.
Last month, Quicken Loans ranked highest in customer satisfaction in the J.D. Power 2015 U.S. Primary Mortgage Origination Satisfaction Study, with an index score of 850, which was up 15 points from 2014.
In its lawsuit, Quicken said HUD as well as the DOJ both sought penalties from the lender for overstating a borrower’s income by just $17, or for lending $26 too much on a $99,500 loan.
Meanwhile, the DOJ lawsuit claims that Quicken submitted “hundreds of loans” for FHA insurance that it knew did not meet the agency’s standards, and also accused the company of having a “culture that elevated profits over compliance.”
Since 2013, Quicken closed $200 billion of mortgage volume across all 50 states. It operates a centralized loan processing facility in Detroit as well as its San Diego-based One Reverse Mortgage subsidiary.
Given that FHA-insured Home Equity Conversion Mortgages comprise most of the reverse mortgages on the market, what lies in store for One Reverse is unclear as a Quicken Loans spokesman told RMD that the company is not making any further comments at this time.
Read the Reuters article.
Written by Jason Oliva