Will the Quicken-DOJ Dispute Spell Doom for One Reverse Mortgage?

The ongoing legal dispute between the federal government and one of the nation’s largest mortgage lenders is leaving the fate of a top-5 reverse mortgage lender lost in the shuffle.

Last Thursday, Judge Mark A. Goldsmith of the U.S. District Court for the Eastern District of Michigan dismissed a lawsuit filed by Quicken Loans against the U.S. Department of Justice (DOJ) and the Department of Housing and Urban Development (HUD)—the latest action in the years-long saga between the parties.

In the lawsuit filed last April, Quicken claimed the DOJ was forcing the company to make public admissions that were “blatantly false, as well as pay an inexplicable penalty” related to allegations that Quicken violated the False Claims Act by underwriting and originating Federal Housing Administration (FHA) loans that did not meet the agency’s lending guidelines. The allegations, however, do not include any reverse mortgage originations, the DOJ confirmed to RMD in April.

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Since then, the dispute between Quicken and the federal government has been widely publicized and highlighted by back-and-forth litigation, including the DOJ leveling its own lawsuit against the company. Quicken Founder and Chairman Dan Gilbert also made headlines last month when he said the company is considering an exit of FHA lending programs altogether as a result of the ongoing conflict.

Quicken Loans now plans to explore other options in its claims against the government as it fights to defeat the government’s “retaliatory lawsuit wrongly alleging” the company violated the False Claims Act, Quicken said in a statement following Goldsmith’s ruling.

“This temporary procedural setback does not deter Quicken Loans from exposing the truth about the DOJ’s egregious attempts to coerce unjust ‘settlements’ from its victims including Quicken Loans by using the guise of the heavy hand and power of the federal government in doing so,” said Quicken Loans CEO Bill Emerson in a prepared statement issued last week.

The exit of Quicken Loans, the nation’s largest FHA lender, from federally-insured lending programs would result in the absence of “billions in profits” for the government, according to the Quicken Loans statement. It would also create uncertainty for the future of Quicken’s reverse mortgage subsidiary, One Reverse Mortgage, which is one of the nation’s largest lenders of FHA-insured Home Equity Conversion Mortgages (HECMs).

One Reverse ranked second among reverse mortgage lenders, with more than 4,600 HECMs endorsed year-to-date through November 2015, according to the recent industry data from Reverse Market Insight. A spokesman from Quicken Loans declined to comment on what the ongoing dispute, including the most recent development of Quicken’s lawsuit dismissal, would mean for One Reverse.

The beef between Quicken and the government dates back to April 2012, when the DOJ and the HUD Office of Inspector General (HUD-OIG) began investigating Quicken under the False Claims Act. The scope of the investigation encompassed approximately 246,000 FHA loans that Quicken had originated from mid-2007 through December 31, 2011, according to a 25-page decision issued by Judge Goldsmith last week.

As part of the investigation, the DOJ and HUD-OIG assessed a sampling of 116 loans, determining that 55 did not comply with FHA lending guidelines and were improperly underwritten.

Quicken Loans argued that the goal of this methodology was to “manufacture a hypothetical percentage” of uninsurable loans—all without ever actually reviewing the loans individually. Additionally, the company claims the DOJ and HUD-OIG created a default rate and applied it to all of Quicken Loans’ FHA loans from the time period of which an insurance claim had been filed.

“Based on this faulty analysis, the DOJ attempted to coerce Quicken Loans to admit wrongdoing and to pay HUD hundreds of millions of dollars to ‘make them go away,’” Quicken Loans said in its written statement.

The company alleges that by using this “sampling scheme,” the DOJ and HUD did not afford Quicken an opportunity to address the findings, and did not have each review conducted by a HUD employee with expertise in mortgage lending.

Quicken also claimed that among the purported errors in the sample loans were allegations of a missing document, though said documents were, in fact, in the file. Meanwhile, in other cases, Quicken is charged with miscalculating a borrower’s monthly income by $2.10, and having provided a borrower with $26 too much on a $99,500 loan.

In an effort to resolve the alleged False Claims Act (FCA) allegations, the government proposed a settlement, the demands of which sought both a financial penalty and a public statement of wrongdoing from Quicken.

The parties, however, failed to reach an agreement, thus leading Quicken Loans to file its April lawsuit “in the face of the DOJ and HUD-OIG’s repeated threats” of an FCA action, claiming it “had no other option than to file this lawsuit,” according to court documents.

Less than one week after Quicken filed its suit, the DOJ struck back with its own lawsuit against the company, alleging that certain loans underwritten and approved by Quicken and endorsed for FHA insurance between September 1, 2007 and December 31, 2011 violated the False Claims Act.

By 2013, Quicken had originated more than 250,000 loans with FHA insurance while maintaining the lowest default rate among all larger lenders in the country. As such, the company vehemently insists it will continue to defend itself against the DOJ’s “baseless” lawsuit.

“Quicken Loans originates the best-performing loan portfolio in the United States,” the company said in its prepared statement. “By the government agency’s own objective public reporting, the company has been—and is currently—ranked the highest quality (and lowest default rate) lender of any large FHA originator.”

In its prepared statement, Quicken Loans stated that through its participation in the FHA program, the government is projected to receive “billions in profits, net of projected claims made, from the insurance premiums collected from the more than $40 billion in FHA home loan volume closed by Quicken Loans during the 2007-2013 time frame.”

Written by Jason Oliva

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  • If Quicken Loans wants to demonstrate the inaccurate conclusion of HUD why not hire an independent audit firm to duplicate the same tests using the exact same number and types of loans in the sample? If the results are terribly divergent then allow the court to choose an entirely different group of auditors to perform a third audit and from that conclude what should be done.

  • Is this jus another move on the part of the Federal Government to harass and plague another major player in the lending arena?

    This could have a major effect on the reverse mortgage industry, especially from an income stream to FHA. Another concern if One Reverse goes out of the reverse mortgage space is the effect it could have on the securities market (GNMA).

    Sure seems like one part of the Federal Government is cutting off the nose of the other part of a Federal Government agency to spite its own face, don’t you agree?

    Between the DOG, sorry, the DOJ, HUD and the CFPB they have done everything they can to put the financial, banking and lending industry’s in either a panic mode or forced closings!

    When is enough, enough, look at what the CFPB and other regulatory agencies of the Federal Government has done to the small community banking industry since 2010 through regulation after regulation.

    Sad is the word, also look at the grief they are causing our industry as well.

    Time will tell what will happen to Quicken loans and their subsidiary companies, such as One Reverse? However, I am glad to see Quicken loans stand up to the DOJ, HUD and the Federal Government, lets give them our support and prayers!!

    John A. Smaldone

    This is the expressed opinion of John A. Smaldone only and does not represent an opinion of Willow Bend Mortgage or its affiliates.

    • John,

      In law, suits and counter suits are far more common than spies and counter spies in Mad Magazine. Threats are also very common.

      Like with Bank of America and Wells, how much profit and revenue do HECMs bring to Quicken? Are HECM profits even a consideration?

      Unlike the two banks, what will be lost if Quicken leaves the industry? It would seem other lenders would easily fill their ranks. Most observers believe we lost a significant marketing avenue when we lost the two banks but the same is not true with Quicken and its call center. Could Quick sell its operations to someone like AAG, especially at today’s low, low prices as compared to the Bank of America’s acquisition of Seattle Mortgage?

      Finally, it is not HECM MIP that is valuable to FHA but rather forward mortgage MIP. The HECM portion of the MMI Fund is still trying to recover all of its cumulative HECM losses according a recent breakdown of the HECM balance in the MMI Fund.

      In conclusion, the loss of Quicken would be a loss to the HECM industry but would it be long-term (like Bank of America and Wells) or short-term (like MetLife Bank)?

      • RMAdvisor, you do bring up very good points. However, I do feel quicken contributed their share to MMI fund that will not be easy to swallow.

        As far as would Quicken be long term like BOA and Wells? Flip a coin, I am only speculating but I don’t think it would be, we are in a different environment today.

        But like I said in the beginning, you bring up some very good points my friend, make it a great day.

        John

      • John,

        If borrowers pay or accrue the costs of MIP, how is it that Quicken contributed much if anything at all to the MMI Fund, especially on forward mortgages where profit exists?

        If Quicken had brick and mortar branches like Bank of America or Wells, then there might definitely be a long-term loss but Quicken is a call center driven model which is most likely easily duplicated by other lenders unlike the branches of either Bank of America or Wells Fargo which our industry has not been able to duplicate.

        Quite frankly the idea of foregoing FHA mortgage opportunities seems more of a threat than a realistic outcome unless the situation is as bad as the audit findings make them appear to be then we could see Quicken forego all new
        FHA mortgage originations.

      • They are looking into conventional 97. That has lower fees and less restrictions than the fha

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