The Department of Justice is charging Quicken Loans Inc., the nation’s largest Federal Housing Administration lender, for hundreds of violations in underwriting and originating FHA-insured loans.
The allegations do not include any reverse mortgage originations under Quicken’s One Reverse Mortgage company, the DOJ confirmed.
The United States filed a complaint on Thursday in the U.S. District Court for the District of Columbia under the False Claims Act.
The lawsuit comes on the heels of a suit filed earlier this week by Detroit-based Quicken against the DOJ and Department of Housing and Urban Development (HUD), in which Quicken contends the DOJ demanded Quicken Loans make public admissions that were “blatantly false, as well as pay an inexplicable penalty or face legal action,” the company said in a statement.
Quicken participated in the FHA insurance program as a direct endorsement lender (DEL). As a DEL, Quicken had the authority to originate, underwrite and certify mortgages for FHA insurance.
The government’s complaint alleges that, from September 2007 through December 2011, Quicken “knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans,” the DOJ says.
Quicken also allegedly instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages, the DOJ says.
“Quicken allegedly had a ‘value appeal’ process where, when Quicken received an appraised value for a home that was too low to approve a loan, Quicken often requested a specific inflated value from the appraiser with no justification for the increase– even though such a practice was prohibited by the applicable FHA requirements,” the DOJ says. “Quicken also allegedly granted ‘management exceptions’ whereby managers would allow underwriters to break an FHA rule in order to approve a loan.”
Quicken’s senior management was aware of these and other problems, according to the government’s complaint, which cites upper managements’ email correspondence as evidence.
In one such email, Quicken’s divisional vice president for underwriting, the second most senior executive in Quicken’s Operations Department, is quoted as saying about the value appeal process that “I don’t think the media and any other mortgage company (FNMA, FHA, FMLC) would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values,” court documents show.
In another email discussing an FHA loan, the operations director, a senior level executive, explained that the loan was approved based on “bastard income,” which he described 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,” according to court documents.
The government’s complaint alleges that as a result of Quicken’s “knowingly deficient mortgage underwriting practices,” HUD has already paid millions of dollars of insurance claims on loans improperly underwritten by Quicken, and that there are many additional loans improperly underwritten by Quicken that have become at least 60 days delinquent that could result in further insurance claims on HUD.
In addition, Quicken allegedly failed to implement an adequate quality control program to identify deficient loans, and Quicken failed to report to HUD the loans it did identify, the DOJ says.
“As the complaint alleges, Quicken violated HUD’s quality standards when obtaining HUD insurance for mortgage loans,” says 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.”
The investigation was a coordinated effort among HUD-Office of Inspector General, HUD, the U.S. Attorney’s Office of the District of Colorado and the Civil Division’s Commercial Litigation Branch.
“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,” Walsh says.
Written by Cassandra Dowell