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THE MUSINGS OF A TRADITIONAL SOUTHERN DEMOCRAT

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Monday, April 20, 2015

The article doesn't note it, but the government pushed such loans; go Quicken: Quicken Strikes Back, Suing DOJ and HUD Over Investigations - Detroit lender alleges it’s a target of a political agenda, being pressured to settle fraud cases

From The Wall Street Journal:

Long on the attack in mortgage-fraud cases, the U.S. government now finds itself the defendant in a lawsuit brought by one of the country’s largest consumer lenders.

Quicken Loans Inc. late Friday sued the U.S. Department of Housing and Urban Development and the Justice Department, alleging it is a target 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.”

In its complaint, Quicken says it is fed up being pressured to settle charges for fraud it says it didn’t commit.

The lender says the government threatened to file a lawsuit unless the company paid a multiple of damages based on a sampling of its loans backed by the Federal Housing Administration, admit that its lending practices were “significantly flawed” and publicly state that it had committed fraud under the False Claims Act.

Spokesmen for the Justice Department and HUD declined to comment.

The complaint from the Detroit-based company, filed in the U.S. District Court for the Eastern District of Michigan, said that the Justice Department investigation was launched almost three years ago and that the department had subpoenaed more than 85,000 documents.

The lawsuit is a rare pre-emptive move by a company under investigation and a twist in government efforts to collect crisis-related penalties. It also reflects lenders’ frustrations with what they say are unfair moves in the government’s yearslong effort to punish firms involved in the crisis.

The Justice Department has been investigating a variety of lenders in connection with mortgages insured by the FHA before the financial crisis.

Quicken, as a large issuer of FHA mortgages, is part of that probe, but since it isn’t a public company, it hasn’t disclosed any investigations as other big lenders have.

Over the past few years, the Justice Department has reached several multimillion-dollar settlements with banks including J.P. Morgan Chase & Co., SunTrust Banks Inc. and U.S. Bancorp for submitting loans for insurance to the FHA that the government says weren’t eligible or had mistakes.

The FHA sells insurance to make lenders whole if borrowers default and is one of the primary means through which borrowers with low credit scores and low down payments get loans.

However, for the past few years, some lenders have been pulling back from the program, citing heavy and uncertain penalties on loans made during the crisis.

“It’s a shame the DOJ would choose to attack the country’s largest and highest-quality FHA lender providing government lending for home buyers and homeowners across all 50 states at the very time our nation needs expanded access to credit for middle-class Americans who benefit most from the FHA program,” said Quicken Chief Executive Bill Emerson.

In the complaint, Quicken said that the Justice Department based its settlement demands on a sampling of 55 of 246,000 loans and that the defects included miscalculating a borrower’s income by $17 and lending a borrower $26 too much.

Because lenders must certify the FHA-backed loans they make have no errors, the government has sometimes pursued damages under the False Claims Act, a Civil War-era law that lets the government recover triple damages.

That has led to what some banks say are onerous settlements for minor penalties. Rather than audit banks’ entire loan portfolios, the Justice Department also tends to extrapolate mistakes based on a sample, another practice that has drawn some banks’ ire.

“The risks of doing FHA loans for lenders is too high and marks a low point when a Quicken Loans has to fight back,” said David Stevens, president of the Mortgage Bankers Association, which lobbies on behalf of lenders. “This has gone too far and will only hurt consumers’ access to credit.”Mr. Stevens is a former FHA commissioner.

A Quicken spokesman in an email said that the company would continue to make FHA loans in the near term and that “like nearly every lender in the country, we will be evaluating the prudence of our continued participation with FHA.” Last year, Quicken’s FHA loan volume declined roughly in line with the rest of the industry.
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And see article on suit by government against Quicken Loans in this 4-24-2014 WSJ article.

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