Quicken, feds square off in court over home loans

A federal judge in Detroit will issue a written decision on whether to dismiss a Justice Department lawsuit against Quicken Loans that alleges the company knowingly submitted claims for hundreds of improperly underwritten Federal Housing Administration-insured loans.

U.S. District Court Judge Mark A. Goldmith grilled attorneys for the loan giant and the government on Monday with questions that ranged from whether the pay stubs used for a certain loan application were “too old” under FHA rules, to whether the Justice Department had more than the 10 examples of allegedly improper loans listed in the complaint.

In its case against Quicken, the government alleges the company ignored “red flags” in dicey home loans that didn’t meet federal standards. The loans involved inflated appraisals, poor credit risks and borrowers with insufficient incomes, the suit says.

The government alleges Quicken had a culture of bending the rules and gave “speed bonuses” to underwriters. The mortgage company failed to disclose the problems with the loans that cost the federal government millions of dollars when they went bad, federal lawyers contend.

In court on Monday, Assistant U.S. Attorney Samuel J. Buffone told Goldsmith that the scheme involved the highest-levels of management at Quicken, and that he would be able to introduce “hundreds” of examples of loans that were part of the scheme.

Buffone said evidence 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.

After hearing from Buffone that only 44 percent of Quicken underwriters passed a test for calculating income, Goldsmith asked Buffone if it was possible that “maybe they (Quicken) just have really incompetent underwriters.”

“A company can’t have incompetent underwriters and then ignore that problem,” Buffone said. “That’s the classic example of an ostrich sticking its head in the sand.”

Quicken attorney Jeffrey Morganroth told Goldsmith that case was about insurance and reimbursement and “the government trying to pigeon-hold insurance claims into the False Claims Act.”

Quicken is top in quality and quantity for FHA loans, has the lowest default rate, which is .33 percent and continues to do business with FHA, Morganroth said.

“Why would FHA continue to do business with them if FHA really truly believed the lender was engaging in a scheme to defraud all along?” Morganroth said.

Dan Gilbert, Quicken’s chairman and founder, has said the company won’t settle.

Quicken contends the lawsuit is the result of a strategy by the Justice Department to sue banks following the mortgage collapse, which resulted in $6 billion in settlements.

Quicken officials say the government “made a conscious, intentional decision to file claims against the largest FHA lenders because they are the largest lenders.”

The mortgage lender contends the government’s case is built on 55 “cherry picked” loans out of the 250,000 FHA loans Quicken closed from 2007-11.

Court documents filed by Quicken attorneys contend the company can prove it had proper underwriting practices, complied with program and contractual requirements, and did not make false claims. It denies the existence of speed bonuses.

The case has an April 11, 2019, trial date.

JChambers@detroitnews.com