Quicken Loans founder Dan Gilbert on Friday ridiculed the Justice Department allegations that his company broke the law while writing some government-sponsored mortgages, saying the investigation was shabby and designed to reach a big deal from the Detroit-based mortgage giant.
“That’s what happens when you dare to stand up for justice and the truth before the Justice Department,” Gilbert said in a conference call Friday night with the Free Press. “This was an attempt to embarrass us and keep pressuring us to write huge checks to sort out (allegations), make them go away and admit things that didn’t happen.”
After nearly three years of investigation, the Justice Department sued Quicken Loans Thursday, alleging that it illegally created hundreds of Federal Housing Administration-insured mortgages by making false claims on loan applications between September 2007 and December 2011.
Quicken denies the allegations, alleging shortcomings in the investigators’ findings and methodology.
On Friday, Gilbert and other Quicken executives said on the conference call that the Justice Department complaint contained numerous factual errors and omissions, and quotes from internal Quicken emails were out of context, simply because of the shock value.
For example, the Justice Department cited in its lawsuit an email written by Quicken’s then Operations Director using the term “bastard income” to describe income information from a borrower for an FHA loan. The director described it in the email as “trying to put together some type of income that is plausible to the investor, even though we know its creation came from something evil and terrible”.
Gilbert said Friday that the lawsuit omitted crucial information that Quicken actually refused the loan mentioned in the email. “We didn’t take out the loan – they make our case for us,” said Jay Farner, president of Quicken Loans.
The Justice Department said it has not commented on any pending lawsuits and has not responded to an email requesting a comment on this story.
Gilbert said the lawsuit was filed because Quicken refused to give in to pressure, pay a large severance payment, and admit wrongdoing.
“You’re talking about a three full year investigation, 85,000 cited documents … and that’s what they bring out – a few anecdotes and a few fragments of email chains that have been taken out of context,” Gilbert said.
Suspecting the government was about to file its lawsuit, Quicken filed a rare preventive lawsuit against the Justice Department last week, asking a judge to rule that the loans in question were in order.
In its lawsuit against Quicken, the Justice Department alleged that the company’s management placed more emphasis on quantity than quality in approving and underwriting FHA-insured mortgages. Justice claims it resulted in Quicken employees driving up borrowers’ incomes or the appraised values of homes in an attempt to attract otherwise unskilled mortgage customers.
The lawsuit alleges that Quicken, a non-bank lender, was not concerned about the loans going lazy because the government guaranteed them. The result, the Justice Department said, was hundreds of improperly signed FHA loans that borrowers failed to repay and that the Department of Housing for Urban Development had to take over.
The lawsuit does not identify any monetary amount for HUD’s losses in connection with inappropriating Quicken loans.
Justice’s attorneys have littered the lawsuit with provocative statements attributed to Quicken insiders and extracted from the company’s internal emails or testimony.
■ The lawsuit states that an email shows employees “falsifying” a borrower’s income in order to get approval for an FHA loan. But Farner, the president of Quicken, said investigators misinterpreted the word and that fumbling in this case actually meant calculating a person’s income by hand rather than using a computer model. Sometimes an applicant has a nontraditional income that doesn’t exactly fit into a computer program, Farner said. “But absolutely, the calculated income was spot on and correct for this loan.”
■ The same director wrote in another email to senior management regarding another FHA loan and borrower: “I could distort her income and add a little extra.”
■ In another email exchange, the director allegedly described Quicken approving a mortgage made up of “bad” parts that “in the sum.
■ And in another email to Quicken CEO Bill Emerson’s question about a particular loan, “What is the benefit of this loan?” – the director replied that “the only advantage here is that we have FHA insurance.”
The lawsuit also quotes several anecdotes:
■ A Michigan resident filed for cash out refinance on an existing home in January 2008. Her property was valued at $ 180,000 which would earn the borrower $ 113,000 in cash upon completion of the loan. The lawsuit states that a Quicken employee wrote in the notes in the credit journal that the borrower “hopes back for $ 115,000”. The lawsuit alleges that Quicken asked the appraiser to increase the estimate to $ 185,000 in order to produce the money it wanted – a prohibited practice, according to the Fed. The higher quality loan was closed and the borrower eventually defaulted on the first payment. The government paid out an insurance claim of $ 204,208.
■ The Feds claim that Quicken “ignored red flags” in the case of a Minnesota mother who failed to pay her FHA mortgage approved in September 2008, resulting in an FHA insurance claim of $ 93,955.19. The borrower’s bank account had multiple overdrafts. And during the application process, she asked for a $ 400 mortgage application fee refund to help support her family.
Quicken also failed to notice that the borrower breached other HUD requirements by using a $ 200 check from an unknown person as a security deposit. The borrower made five payments before default.
Today, Quicken Loans is ranked the nation’s No. 2 lender for direct-to-consumer mortgage loans and is the leading provider of FHA-backed loans. But in 2007 – the earliest year included in the Justice Department’s investigation – Quicken was barely one of the top 25 largest mortgage lenders.
“It’s surprising they’re after them,” said Guy Cecala, editor of Inside Mortgage Finance, “and it clearly seems to have to do with the fact that they got into the top 3 lenders – that’s a bit of a Aim on her back. “
“What we saw after the foreclosure crisis is that if you look hard enough, you can find problems on almost any loan,” he said.