Quicken Loans, the nation's largest Federal Housing Administration-backed mortgage lender, filed suit late Friday in Federal District Court against the United States Department of Justice and the Department of Housing and Urban Development.
The company says it was left with no alternative but to take this action after the DOJ demanded Quicken Loans make public admissions that were blatantly false, as well as pay an inexplicable penalty or face legal action.
"After three years of struggling to understand the DOJ's position and methodology that would warrant the country's largest and highest quality FHA lender to make untrue admissions and pay an inexplicable penalty or face public legal action, it is time to ask the court to intervene," said Quicken Loans CEO Bill Emerson. "No threat, including high-profile senseless lawsuits from powerful federal officials, will deter our company and its leadership from doing the right thing. We will stand in defense of our impeccable reputation established by thousands of hard-working ethical team members over our 30-year history."
Quicken Loans has provided the DOJ with more than 85,000 documents, including 55,000 emails. In addition, the DOJ has conducted hundreds of hours of depositions from numerous Quicken Loans team members.
Three years later, the DOJ inquiry has resulted in the threat of a federal lawsuit based on faulty analysis of a miniscule number of cherry picked mortgages from the nearly 250,000 FHA loans the company has closed since 2007.
"It's a shame the DOJ would choose to attack the country's largest and highest quality FHA lender providing government lending for homebuyers and home owners across all 50 states at the very time our nation needs expanded access to credit for middle-class Americans who benefit most from the FHA program.
"The Constitution provides for checks and balances among the three branches of government. We are hopeful and confident that after examining the facts, the judicial branch will exercise their authority to provide just relief from this misuse of power," Emerson said.
By the FHA's public reporting, Quicken Loans has been, and is currently, ranked the highest quality lender with the lowest default rate of any FHA originator in the country – closing significant volume.
“Quicken Loan's decision to sue the Government over what it has alleged is arbitrary and capricious conduct related to the investigation of Quicken's lending practices is unconventional, to say the least. The lawsuit itself is a legal long shot,” said Matthew Schwartz, a former federal prosecutor who is now a partner at Boies, Schiller & Flexner in New York. “The government generally has immunity, and great discretion where it doesn't, over how it conducts its investigations or settles enforcement actions.
“But the lawsuit gives voice to an increasingly popular sentiment among financial institutions: that the government is, for political reasons, extracting hundreds of millions, if not billions, of dollars in settlements for what are at best technically and immaterially incorrect claims,” Schwartz said. “While the government will probably win this lawsuit, if Quicken's allegations are correct, it may be forced to explain its conduct in a way that will undermine the law enforcement effect of this and other recent enforcement actions.”
Quicken Loans is the nation's largest FHA lender and has originated the government agency's best performing loan portfolio. According to the FHA's publicly available data, Quicken Loans maintains the lowest compare ratio – the default rate of a single lender compared to FHA's total mortgage portfolio.
In addition, through Quicken Loans' participation in FHA's program, the government is projected to receive more than $5.7 billion in net profits from the insurance premiums collected above and beyond claims made from over $40 billion in FHA home loan volume closed by Quicken Loans during the 2007 -2013 timeframe.
Quicken Loans' success in originating FHA mortgages has not gone unnoticed, the company says. On multiple occasions, representatives from FHA have visited Quicken Loans' office to study the company's underwriting processes.