Gilbert, Quicken Loans entwined in Detroit blight
Dan Gilbert has taken a leading role in the city's fight against blight.
The Detroit business mogul co-chaired a taskforce convened by the Obama administration to tackle the problem and helped fund a survey last year that found nearly 40,000 structures need to be torn down. The data was the most extensive ever compiled and helped City Hall develop a strategy on where to demolish homes to save neighborhoods.
His company, Detroit-based Quicken Loans, meanwhile, had the fifth-highest number of mortgages that ended in foreclosure in Detroit over the last decade — and half of those properties are now blighted, The Detroit News found as a part of a project examining foreclosure's effect on the city.
The firms with more failed loans in the city were sister companies Argent Mortgage Co. and Ameriquest Mortgage Co.; Washington Mutual; New Century Mortgage Corp., and Countrywide Financial Corp., according to an analysis by The Detroit News. All except Quicken collapsed during the mortgage meltdown.
The News used Gilbert's Detroit Blight Task Force findings and thousands of property records to examine mortgage lending in Detroit, including Quicken's record, in part because of Gilbert's involvement at the forefront of private support for city efforts to demolish dilapidated properties.
Gilbert, the founder of the online mortgage lender, testified about blight strategy at the city's bankruptcy trial in 2014 and many have credited downtown's comeback with his purchase of 70 buildings and the 2010 relocation of his company from Livonia.
In an interview, Gilbert said the number of foreclosures on the company's loans merely reflects the large volume of investments the firm made in the city and that it had little role in the eventual conditions of homes in a city otherwise decimated by the economic meltdown, abandonment and high taxes.
"It's very hard to make any causation between these loans and the fact that (homeowners) walked away or could not afford the payments and some eventually became blighted," Gilbert told The News.
Records show Quicken wasn't a major player in the subprime mortgage industry that was active in Detroit in the mid-2000s, but the ACLU of Michigan and neighborhood leaders say the firm's high ranking among lenders whose mortgages failed shows it played a part in the city's blight.
The News reviewed 378 lenders that had at least 10 loans end in foreclosure in Detroit over the last decade from 35,000 foreclosure records compiled by RealtyTrac, a California-based real estate data firm.
In total, 52 percent of the foreclosed Detroit properties that had Quicken mortgages are now considered blighted, demolition-worthy or have been seized by Wayne County for the owner's failure to pay taxes. Citywide, 56 percent of all mortgage foreclosures are now similarly troubled.
Quicken's rate of blighted foreclosures is well below subprime companies, such as Argent and Ameriquest and Washington Mutual (70 percent) or New Century (67 percent).
Brooke Tucker, an attorney for the ACLU of Michigan, said there is "no question" Quicken's large number of foreclosures over the past decade contributed to Detroit blight but other financial institutions were worse.
Tucker, who has investigated foreclosures, represents the ACLU in a federal lawsuit accusing banking giant Morgan Stanley of funding predatory lending in Detroit. The suit does not include Quicken Loans.
"I wish banks would spend more funds like Dan Gilbert to try to fix the mess, but they do have a responsibility for the mess," Tucker said. "This is not something that just happened. ... This is a bank-driven, mortgage-driven problem."
Quicken made news in April when the federal government sued the lender, claiming the company approved hundreds of mortgage loans that didn't meet federal standards between 2007 and 2011. Gilbert filed a pre-emptive suit against the U.S. Department of Justice, claiming it is on a "witch hunt."
The suits, which are ongoing, make no specific mention of Detroit mortgages.
Steve Bancroft, former director of the Detroit Office of Foreclosure and Prevention, said Quicken was never seen as a "bad actor" in the city.
"Quicken is probably more responsible than most," said Bancroft, who led a group formed by foundations in 2008 and disbanded in 2011 to advise City Hall about the mortgage crisis.
Quicken officials "were the only ones we talked to who showed any remorse" for the tidal wave of foreclosures in Detroit, but like other lenders, they acknowledged no mistakes, he added.
"They all said, 'We're sorry this happened to the city, but we didn't do any bad loans,' " Bancroft said.
Brian O'Connor, personal finance columnist for The Detroit News, explains the difference between prime and subprime loans, and how the effect of subprime mortgages snowballed in Detroit.
Quicken president Jay Farner said the company is "proud of its record in Detroit." It made good loans to qualified buyers and couldn't predict a worldwide economic meltdown, he said.
Quicken officials said the company had an overall city foreclosure rate of 27 percent between 2000 and 2014 for owner occupants. Farner said that was better than the city average. Comparison numbers for other lenders or a city average aren't publicly available and he could not provide them.
Quicken's foreclosure rate was higher — 34 percent — when looking at loans the company sold to owner-occupants between 2004 and 2006, which was before the real estate crash, according to numbers provided by Quicken.
Quicken said there was little difference in credit score, borrower debt and other lending factors in the 2,330 Detroit mortgages for owner-occupants the company wrote that ended in foreclosure and the 6,292 that did not from 2000-14.
"You ask yourself: These are all good loans. Why do these loans go into foreclosure?" Farner asked, adding many were refinance deals that saved borrowers cash.
Gilbert said his company's loans didn't create blight. He said there's "not enough data" to know if the city's 65,000 bank foreclosures over the past 10 years created blight. "Ninety percent of the problem" is city assessments that were triple the market value and high property taxes, he said.
"I'm sure some lenders contributed to part of it," Gilbert said. "But No. 1, I'd have to say, is property taxes. … That was like throwing gas on a fire."
Bernard Parker, an east side activist, said it was difficult to attend a community meeting 10 years ago without meeting Quicken brokers selling mortgages. They were more aggressive than other companies, Parker said.
"Quicken, along with other banks that gave these loans, have some responsibility to rebuild neighborhoods," said Parker, a former Wayne County commissioner who now runs the Timbuktu Academy of Science and Technology charter school near French and Mack.
"No one thinks Dan Gilbert is a friend or champion of the neighborhoods" around his east side neighborhood, Parker said.
Denise Lang doesn't care about the debate. She just wants the home across the street demolished.
Her front window in the Conant Gardens neighborhood in northeast Detroit overlooks the burned-out home with an overgrown lawn and a "condemned" notice tacked to where the front door once hung.
"For a while, people were always going in and out of there, scrapping," Lang said. "Someone boarded it up, but they just took the boards to get back in there. ... It's a nuisance, that's for sure."
Quicken Loans wrote an $85,000 mortgage for that home on Brinker Street in 2007. Three years before, the owner was sued by collection agents and a credit card company over unpaid debts totaling nearly $15,000, records show.
By the time it went into foreclosure in 2010, the mortgage was sold to Bank of America and the debt had grown to $89,000.
Quicken chief economist Bob Walters said the mortgage is "the kind of loan we are proud of."
"If you look at low- to moderate-income folks ... you will find lots of different dings on their credit, medical things. That is part of the condition those folks live in," Walters said.
"As long as they have re-established that they have their job and put that modest down payment in place, then those people deserve home ownership."
Lang's neighbor was a first-time homeowner and a nurse for 12 years who was rebuilding her credit. When the loan was written, there was little reason to believe she'd foreclose, Walters said.
The loan had an interest rate of 7.85 percent, which included 1.42 percent for mortgage interest, or private mortgage insurance (PMI), a common payment required for those who can't afford a traditional down payment.
Those interest rates weren't uncommon at the time.
Using federal data, The News found that 24 percent of Quicken's Detroit loans written between 2004 and 2006 were written at 3 percentage points or higher than treasury rates of comparable maturity. It's one method that academics and federal economists have used to define "high-priced" or "subprime" loans. The News examined those years because the data wasn't collected until 2004 and subprime lending declined dramatically in 2007, as the real estate bubble burst.
That percentage is below many lenders, including Countrywide (55 percent) and ACC Capital (88 percent), which owned Ameriquest and Argent.
Quicken's Farner said the analysis is flawed and that the company's loans "are anything but subprime." Quicken officials said there are several reasons its loans would be pushed into "high-priced" category — including the combination of small loan amounts and other costs such as appraisals and PMI.
Gilbert said subprime loans generally had interest rates of 13 percent and above and Quicken didn't sell those loans.
Quicken was never known as a subprime lender, said Guy D. Cecala, CEO and publisher of "Inside Mortgage Finance," a Maryland-based industry newsletter.
"Quicken would argue their track record was better than anyone in the industry, but of course the bar isn't that high in the mortgage industry," he said.
- More than half of all bank-foreclosed homes are blighted in Detroit. The cost to taxpayers: $500 million. Explore a database and map of tax-foreclosed homes in Detroit
- More than 1-in-3 homes have been foreclosed in 10 years in Detroit, the equivalent of every house in Buffalo.
- Subprime lending was rampant in Detroit and areas with the most high-priced lending are the most blighted.
- More stories, video, multimedia in this series at foreclosure.detroitnews.com
Thousands more foreclosures are coming