Now that its lawsuit against the government was dismissed, Quicken Loans plans to step up efforts to fight the government, which has accused the the mortgage giant of approving bad loans just to make money.
The Detroit-based lender last April sued the U.S. Department of Justice and Department of Housing and Urban Development to prohibit the government from using what it called a flawed sample of loans to build a case against Quicken Loans. Quicken Loans’ suit in federal court, which included a demand for a jury trial in Michigan, was dismissed in December.
But the company plans this week to renew its call for the case to be heard in Michigan.
The Department of Justice has its own lawsuit against Quicken Loans, also filed last year. The government has accused many large mortgage lenders of committing fraud to push through home loans before, during and after the economic crisis, and those loans eventually went into default. The loans in question were backed by the Federal Housing Administration, and the defaults left taxpayers on the hook when lenders collected FHA insurance on the loans. The defaults also rocked neighborhoods nationwide after the houses went into foreclosure.
While many lenders have settled with the government, Quicken Loans says it will not. “The case is absurd,” Quicken Loans CEO Bill Emerson said in an interview. “We’re going to continue to fight it.”
Quicken Loans had previously filed a motion to have the case heard in Michigan instead of Washington D.C. The company’s lead counsel, Jeff Morganroth, said it makes much more sense to have the case heard by a jury in Michigan because all of he witnesses are in Michigan, as are all of the records and company officials. The court has requested that Quicken Loans file papers to renew the motion; that’s expected later this week. The company expects a ruling on the motion in the next couple of months, Morganroth said in an interview.
Emerson notes that Quicken Loans is the nation’s largest FHA lender and also has the lowest default rate. That irony is one of the reasons Quicken Loans is pushing back so forcefully when other lenders have just settled.
The government has gone after at least 15 large lenders in the country during the past several years, with similar claims that they fraudulently approved loans that ultimately defaulted and cost the FHA money. FHA, an 81-year-old program, can help consumers buy homes with lower down payments. As long as the borrower and home meet certain standards, the government will guarantee the loan and reimburse the lender if the loan goes bad.
“I’m not aware of anyone else that is fighting it like we are,” Emerson said. “We’re the lone soldier.”
Quicken Loans Chairman Dan Gilbert, who also is majority owner of the Cleveland Cavaliers, last year vowed to fight the case. At stake, he said, is not only a multi-million dollar settlement, but more importantly, the company’s reputation if it admitted to wrongdoing when it didn’t do anything improper.
There’s another concern here, Emerson said in the interview. Many FHA lenders have pulled out of FHA, leaving some consumers with fewer options to try to get financing for homes.
“At some point, we have to ask ourselves . . . whether we can continue in this program,” Emerson said.
That likely would be a big blow to FHA and perhaps the broader housing market. Quicken Loans issues tens of thousands of FHA loans a year and also serves as a consultant to FHA about how to improve the lending process.
That’s part of what’s wrong with the government’s case, Quicken Loans says.
When it’s time to fight the case filed by the government, Quicken Loans will point out that the company wrote about 250,000 FHA loans from 2007 to 2011, the years covered by the lawsuit. The government subpoenaed files on 322 specific loans. Of those, government auditors decided to look at 116 that had defaulted, and said 55 (47 percent) had “defects” or mistakes. The government then extrapolated that and determined that 47 percent of some large portion of Quicken Loans’ portfolio contained fraud. The company said that math is flawed.
Quicken Loans has about 11,000 employees, a few hundred of them in Cleveland. Gilbert is also founder and chairman of Rock Ventures, which operates Cleveland’s Horseshoe Casino.