The U.S. Justice Department has sued Quicken Loans, alleging the Detroit mortgage lending giant had improperly originated and underwrote mortgages insured by the Federal Housing Administration (FHA). The complaint, filed in the U.S. District Court in Washington, D.C., alleges that from September 2007 through December 2011, Quicken knowingly submitted, or caused to be submitted, claims for hundreds of improperly underwritten FHA-insured loans.

The government is claiming that Quicken encouraged its employees to disregard FHA rules and falsely certify compliance with underwriting requirements in order to make profits from FHA-insured mortgages. It’s alleged in the government’s complaint that when Quicken received an appraised value for a home that was too low to approve a loan, Quicken would on numerous occasions request a specific new and higher value from the appraiser with no justification for the increase. That practice is prohibited by FHA rules.

The government also said that Quicken granted “management exceptions” whereby managers would allow underwriters to break an FHA rule in order to approve a loan. Interestingly, Quicken beat the government to the punch by suing the government in a declaratory judgement lawsuit. The company is asking for a declaration that its actions were proper and legal. Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division, had this to say:

Those who do business with the United States must act in good faith, including lenders that participate in the FHA mortgage insurance program. To protect the housing market and the FHA fund, we will continue to hold responsible lenders that knowingly violate the rules.

Quicken is said to be the nation’s largest originator of loans backed by the FHA. In recent fiscal quarters, Quicken has ranked as the nation’s second-largest lender for direct-to-consumer mortgage lending, although its total volume, like that of all major mortgage lenders, has declined since the refinancing boom started to fade in 2013. The government’s complaint alleges that Quicken’s senior management was aware of the problems. There are some very interesting – and very damaging – internal emails that Quicken’s bosses and lawyers will have great difficulty explaining.

The government’s complaint alleges that as a result of Quicken’s knowingly deficient mortgage underwriting practices, The U.S. Department of Housing and Urban Development has already paid millions of dollars of insurance claims on loans improperly underwritten by Quicken. It will be very interesting to see how this matter works out. At this juncture it doesn’t look good for Quicken.

Source: The Detroit Free Press

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