U.S. attorney: Quicken Loans shouldn’t get venue change

Jennifer Chambers
The Detroit News

The U.S. Justice Department says Quicken Loans should not be granted a change of venue to Detroit from Washington, D.C., after the company delayed the government’s case against the loan giant for nine months and “forum-shopped” with its failed pre-emptive suit.

U.S. Attorney Brian Hudak filed a 376-page motion on Wednesday opposing Quicken’s renewed request to U.S. District Judge Reggie B. Walton to move the case to the Eastern District of Michigan for the convenience of witnesses and parties to the lawsuit.

The government is suing the online mortgage seller, alleging it knowingly submitted claims for hundreds of improperly underwritten Federal Housing Administration-insured loans. These loans allegedly 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 suit said. The government also alleges Quicken gave “speed bonuses” to underwriters and encouraged a culture of bending the rules to encourage loan approvals. The suit claims taxpayers lost millions of dollars when the loans went bad.

In its motion, Hudak said Quicken’s attempt to deprive the U.S. government of its chosen venue by filing its suit against the Justice Department on April 17 and invoking a first-filed rule were rejected by a federal judge in Detroit.

Quicken premised its original transfer request on the outcome of its pre-emptive suit, Hudak says, but its renewed motion to transfer venue filed last month “barely mentions” that suit and focuses on its opinion that the Eastern District of Michigan is more convenient to it and its witnesses.

“The Court should not reward Quicken Loans’ filing of meritless pre-emptive suit by granting it its favored forum when this district is an appropriate forum for the case to proceed,” Hudak said.

In April, Quicken founder and president Dan Gilbert told The News that Quicken filed suit first because the Justice Department was on a “witch hunt.” Federal attorneys wanted a “nine-figure settlement” from the Detroit company before filing suit, Gilbert said.

Hudak accused Quicken of ignoring its own connections to Washington, D.C., saying its attorneys in the case are located there and a greater number of FHA loans were originated in and around the D.C. area than Metro Detroit.

Specifically, there were 13,417 total loans, worth more than $2.8 billion, that originated within 200 miles of D.C., while 12,325 loans worth $1.57 billion, were originated in the Detroit area.

The Justice Department and the HUD Office of Inspector General began investigating Quicken — an FHA-approved lender for nearly 27 years — under the False Claims Act.

The scope of the investigation encompassed about 246,000 FHA loans Quicken had originated from mid-2007 through Dec. 31, 2011. The federal government’s lawsuit alleges the loans did not meet federal standards and that Quicken employees regularly spoke of “fudging” a borrower’s income to get approval for FHA insurance.

It included emails from company officials discussing the “bastard income” of borrowers. One email described how a customer was approved for a loan after he stopped paying other bills and his credit score dropped 100 points.

The lawsuit followed numerous settlements between the Justice Department and other mortgage writers, and Quicken officials claimed the federal government was targeting all lenders after the 2008 mortgage meltdown.

Bill Emerson, Quicken Loans CEO, said in a statement on Dec. 31 that by 2013, the company had originated more than 250,000 loans with FHA insurance while maintaining the lowest default rate of all large lenders in the country.

“Yet the DOJ and HUD still retroactively changed the rules and standards for evaluating the company’s FHA insured loans,” Emerson said.

Emerson said the dispute originated when HUD and the DOJ communicated to Quicken Loans that they had jointly assessed that 55 loans out of the 250,000 FHA loans the company originated from 2007-13 did not comply with HUD and the DOJ’s interpretation of FHA lending guidelines.

“The goal of this methodology was to manufacture a hypothetical percentage of uninsurable loans — all without ever actually reviewing the loans individually. They then created a default rate and applied it to all of Quicken Loans’ FHA loans from the time period of which an insurance claim had been filed,” Emerson said.

“Based on this faulty analysis, the DOJ attempted to coerce Quicken Loans to admit wrongdoing and to pay HUD hundreds of millions of dollars.”

Quicken Loans asked for the first venue change in May, but Walton temporarily delayed the government’s case, saying it would be “prudent” to wait for a ruling by a federal court in Detroit, where Quicken Loans sued the government seeking to quash its three-year investigation into the company’s lending practices.

In December, a federal judge in Detroit dismissed Quicken Loans’ lawsuit against the U.S. Justice Department.