Quicken Sued By Feds Over Home Loans

WASHINGTON, D.C. (CN)- The United States' second largest mortgage lender routinely approved loans that violated Federal Housing Authority rules, resulting in millions in losses for the federal government, the U.S. Justice Department claims.

Quicken Loans, Inc., is approved by the U.S. Department of Housing and Urban Development to underwrite mortgage loans under an FHA program designed to encourage home ownership by creditworthy low income families and first-time home buyers.

In a lawsuit filed in the Washington, D.C. Federal Court last week, the Justice Department says Quicken took advantage of its position and intentionally made exceptions to program rules in order to approve families who did not meet the criteria for a loan.

Approving more families for loans mean more profits for Quicken, the agency says. At the same time, however, any costs of default fell squarely on the shoulders of the federal government.

"Quicken established a culture that valued getting a loan approved and endorsed for FHA insurance over complying with FHA's rules," the complaint says. "Quicken's aim was to get loans insured by the United States and sold for a profit - even when Quicken could not truthfully certify to FHA that the loan qualified for FHA insurance."

Quicken management encouraged its underwriters to break HUD rules by allowing exceptions to underwriting requirements, requesting inflated appraisals, manipulating data, pressuring underwriters to approve loans faster, paying prohibited commissions to underwriters and encouraging underwriters to ignore risks evident in loan files, the Justice Department says.

The lender also had the FHA endorse loans that it knew violated FHA requirements, the complaint says.

The complaint goes on to describe how, in one instance, Quicken realized it had approved and closed an FHA loan for a borrower who would not use the home as his primary residence, a requirement of the FHA.

Instead of halting the process, Justice Department says, Quicken's operations director, Mike Lyon, wrote, "The FHA loan closed on 4/29. Over a month ago. We can't unwind that. My suggestion is to get it insured and out the door." When that borrower defaulted, FHA paid Quicken a $162,740 insurance claim.

"HUD's underwriting requirements are designed not only to protect it and the taxpayers from improperly underwritten and unduly risky loans, but also to ensure that creditworthy borrowers are able to handle the monthly payments and to become lasting homeowners," the complaint says. "Quicken's underwriting of ineligible loans and false certifications of compliance with applicable requirements undermined these objectives, harming homeowners and the housing market."

Quicken vehemently denied the government's accusations in an online statement, calling the justice department's suit a "witch-hunt."

The government built its case by cherry picking a few documents and out-of-context emails from 85,000 documents it subpoenaed over the course of its three-year investigation, Quicken said.

Those conversations relate to a "miniscule" number of loans out of the 250,000 mortgages Quicken has closed on since 2007, the lender said.

Quicken said it continues to be part of the FHA program, but it "will be evaluating the prudence of [its] continued participation in the FHA program."

Quicken filed its own suit the week before the government's lawsuit was filed, protesting the government's tactics and seeking restitution.

The U.S. seeks treble damages from Quicken under the False Claims Act.

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