Judge to decide whether to move Quicken Loans suit

David Shepardson
Detroit News Washington Bureau

Washington — A federal judge will hold a May 29 hearing on whether to delay or transfer the Justice Department's suit accusing Detroit-based mortgage lender Quicken Loans Inc. of improperly approving loans that cost the government millions of dollars.

Last week, the lender asked a federal judge in Washington to block the Justice Department's civil suit from proceeding until a federal judge in Detroit decides whether the case should be heard in Detroit.

U.S. District Judge Reggie B. Walton set a hearing on the issue in three weeks.

In April, the Justice Department sued Quicken Loans, saying it violated mortgage underwriting rules and ignored "red flags" on dicey home loans, costing the federal government millions of dollars on FHA-insured mortgages.

In a pre-emptive strike, Quicken filed suit in U.S. District Court in Detroit less than a week before the Justice Department sued, seeking to quash the three-year government investigation.

Quicken lawyers argue that in any case, the Justice Department suit should have been filed in Detroit.

"Nearly all of the challenged conduct in this suit occurred in Quicken Loans' offices located in Detroit, Michigan, or nearby; indeed, every single person identified in the United States' complaint is located in Detroit, as are all of the documents referenced in the complaint," Quicken Loans said in its court filing. "Grasping for some connection to the District of Columbia, the complaint alleges that the FHA has its headquarters here."

In a 66-page lawsuit filed in Washington, the government claims that from September 2007 through December 2011, the online mortgage giant knowingly submitted claims for hundreds of improperly underwritten FHA-insured loans. These loans involved inflated appraisals, poor credit risks and borrowers with insufficient incomes. Quicken also failed its obligation to disclose problems with the loans to the FHA, the government alleges.

Quicken President Jay Farner in a Detroit News interview last month denied the allegations and said the lawsuit was a pressure tactic to get Quicken to settle and pay a substantial fine, which, he said, the company refuses to do. It was "not a small sum of money," he said, declining to be specific.

"We were focused on doing the right thing," Farner said. "We would absolutely, positively not do a loan unless the income was accurate."

In a written statement in April, Quicken said its loans have generated more than $5 billion in profits for the FHA even after claims have been paid. Quicken said it would continue making FHA loans "for now," but said "like nearly every lender in the country, we will be evaluating the prudence of our continued participation in the FHA program."

"The real victims in this unjust claim are the millions of middle-class American families who rely on FHA financing to reach their goal of affordable home ownership," Quicken said in the statement. "Today's DOJ filing is simply the continuation of the abusive actions and a make-good on the DOJ's threats since their witch-hunt began three years ago."

Quicken said in a court filing it has 175 underwriters, including 37 who review appraisals for FHA loans — and 33 are in Detroit. Quicken has 15 management personnel responsible for overseeing FHA underwriting — with all but one in Detroit. Quicken also has 11 analysts on its quality control team who review FHA loans.

The Justice Department contends Quicken had a culture of encouraging approvals rather than following the rules, in part because the U.S. government, and not Quicken, would pay if borrowers defaulted. Underwriters were pressured to approve loans even if they thought borrowers couldn't or wouldn't be able to pay their mortgages.

Quicken's compensation practices encouraged employees not to follow the rules, the Justice Department said. Underwriters got "speed bonuses" and sanctioned underwriters who were not reviewing loans fast enough. Employees who didn't hit production numbers would be disciplined or fired. "Quicken's underwriting focus was clear — underwrite loans as quickly as possible, and approve as many as possible," the complaint said, saying the compensation "incentivized quick work rather than quality work."