Wednesday, May 4, 2016

The Quickening

Why is Justice suing one of the nation's most careful FHA lenders?

Wall Street Journal Editorial
May 4, 2016

‘If we’ve done nothing wrong, then we’re going to fight,” says Quicken Loans CEO Bill Emerson. He’s talking about the U.S. Department of Justice’s lawsuit against his company, which looks likely to go to trial. So be it. A trial might allow the public to see how the culture of Washington has elevated housing goals over taxpayer safety.

The Obama Administration has extracted more than $100 billion in mortgage settlements from the nation’s largest banks. And when the feds sued Quicken Loans last year, they probably figured that another corporate defendant would roll over and beg to be left alone in return for a large check to Uncle Sam. They may have figured wrong. Like the title character in the 1986 film “Highlander,” Quicken may be the last big mortgage lender standing in this legal fight.

Justice claims Quicken harmed taxpayers by willfully violating Federal Housing Administration rules to qualify risky loans for federal mortgage insurance. “Quicken’s conduct caused hundreds of improperly underwritten loans to be endorsed for FHA insurance,” says the government, “where the borrowers ultimately did not repay the loans.”

The government accuses the Detroit-based lender of violating the False Claims Act, breaching a fiduciary duty and negligence. The government calls Quicken “a culture that elevated profits over compliance.”

The feds can try to sell this story at trial. Justice offers spicy quotes from tens of thousands of emails and other internal documents that it extracted from the company. Readers of the federal complaint are treated to tales of Quicken employees discussing “fudging” borrowers’ income and questioning whether it was derived from legitimate sources. In one exchange quoted in the federal suit, Mr. Emerson asks “where is the upside” on one particularly sketchy loan. An employee responds that “the only upside here is we have FHA insurance.”

It looks bad on the surface, but a closer inspection shows why the feds might not want this case to get as far as a trial.

Read more here.

See related feature "The Litigation Factor" in Mortgage Banking Magazine here.