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Experts on how AI makes a difference in the mortgage process

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Quicken Loans’ lawsuit against DOJ, HUD tossed out by federal judge

Lender says it's only a 'temporary procedural setback'

A federal judge tossed out Quicken Loans’ lawsuit against the U.S. Department of Justice and the Department of Housing and Urban Development that alleged the lender was being forced to make public admissions that were blatantly false, as well as pay a penalty or face legal action.

According to an article from Reuters, Judge Mark Goldsmith granted the DOJ’s motion to dismiss Quicken's initial complaint.

Quicken Loans, which is the nation's largest Federal Housing Administration-backed mortgage lender, said it now intends to explore its options in its claims against the government while fighting to defeat the government’s retaliatory lawsuit alleging that Quicken Loans violated the ‘False Claims Act.’

“This temporary procedural setback does not deter Quicken Loans from exposing the truth about the DOJ’s egregious attempts to coerce unjust ‘settlements’ from its victims including Quicken Loans by using the guise of the heavy hand and power of the federal government in doing so,” said Bill Emerson, Quicken Loans CEO.

Quicken sued the DOJ and the Department of Housing and Urban Development in April 2015, stating that it was left with no alternative but to sue due to the DOJ’s demands.

The government was quick to react and countersued Quicken Loans six days later.  In the United States government’s lawsuit, it accused Quicken Loans of improperly originating and underwriting loans that were insured by the FHA.

According to an announcement from the Department of Justice, the government alleges that from September 2007 through December 2011, Quicken “knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans.”

The government’s complaint alleged that Quicken instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages.

Quicken denied those charges, with Quicken Loans’ CEO Bill Emerson going so far as to say that the FHA “has been hijacked by the Department of Justice.”

Emerson made that allegation in a June interview with HousingWire. 

In the interview, Emerson highlighted that the settlement is based on a miniscule numbers of loans the company originated from 2007 – 2013 that did not comply with HUD and the DOJ’s interpretation of FHA lending guidelines.

“We’re talking about 55 loans that the DOJ said had an issue with out of the 250,000 FHA loans that we’ve done in that time period,” Emerson said. “We refuted 47 of those, so we’re only really talking about eight of those.”

Examples from Quicken of the supposed errors in the sample loans were allegations of a missing document – but the documents were, in fact, in the file. In another case, a client’s monthly income had been miscalculated by just $2.10, and in another Quicken Loans had provided a client $26 too much on a $99,500 loan.

“By 2013, Quicken Loans had originated more than 250,000 loans with FHA insurance while maintaining the lowest default rate of all large lenders in the country, yet the DOJ and HUD still retroactively changed the rules and standards for evaluating the company’s FHA insured loans,” Quicken Loans said in a statement. Quicken Loans and other lenders no longer operate with any certainty as to the rules and standards for FHA lending, which is a significant and important segment of financing for the country’s housing market consisting of middle-class Americans and first-time home buyers. This is the reason why there has been a stampede out of the FHA program by numerous large banks over the past two years.

And as a result of this situation, Quicken Loans might add its name to the list.

At the beginning of December, Quicken Loans said it is considering ending its participation in FHA lending entirely, citing the government’s aggressive enforcement policies as the main reason for potentially dropping FHA lending.

This would be major news in the industry given that according to Quicken Loans, it originates the FHA’s best-performing loan portfolio in the United States. By the government agency’s own objective public reporting, the company has been – and is currently – ranked the highest quality (lowest default rate) lender of any large FHA originator.

From here, Quicken Loans said it will defend itself against the Justice Department’s baseless lawsuit.

[Correction: An early version of this article said Quicken Loans filed the suit one day before the DOJ’s. The actual number of days is six.]

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