Almost four years after the U.S. Department of Justice filed a lawsuit against Quicken Loans alleging that the mortgage lender violated underwriting rules, causing tens of millions of dollars in losses to the government in FHA-backed loans, the two sides have reached a settlement.
While the Feds had been targeting a number as high as $200 million, the final number of the settlement is $32.5 million.
Quicken admitted no wrongdoing in the deal, though engaged in a bit of deceptive wordplay in its statements to the Detroit Free Press.
“Resolution is the right term, not settlement,” Quicken Vice Chairman Bill Emerson told the paper. “We had done nothing wrong. Their claims were not supported.” Of course, Emerson, in the same interview, said the deal was made to, as the paper wrote, “resolve cases where mistakes were made.”
Emerson stressed that number represents a 0.02% error rate on some $108 billion in FHA-related lending from 2007 to the present.
“We did exactly what we said we would do from the beginning,” Emerson said. “At the end of the day, I think this was a fishing expedition from a previous DOJ.”
While he didn’t go into any specifics, the initial lawsuit, which was pre-empted by a lawsuit by Quicken against the government, and which was tossed by a judge, did lay some out:
According to the complaint, between September 2007 and December 2011 Quicken knowingly submitted, or caused the submission, of claims for hundreds of improperly underwritten loans backed by the FHA. Quicken knowingly originated loans that could not meet FHA underwriting requirements through two ways, according to the lawsuit: the company’s “management exception process” and its “value appeal” process.
For example, in the “value appeal” process, the government alleged that, if an appraisal value for a home came in too low, Quicken would routinely ask for a specific new and higher value from an appraiser, “often with no justification for the increase.” That’s prohibited under FHA guidelines.
In one instance, the complaint said, a borrower’s bank account statement showed overdrafts over the course of numerous months. The borrower requested a refund of Quicken’s $400 mortgage application fee so she could feed her family. The government says Quicken approved the loan anyway, and the borrower made only five payments before she defaulted. As a result, the complaint said, HUD paid a claim for nearly $94,000.
Quicken would also routinely approve improper FHA-backed loans because the FHA would have to cover the losses, according to the complaint.
In yet another email to senior executives, [Quicken’s Operation Director, Mike] Lyon said Quicken approved a loan consisting of “lousy” parts that “when added up as a whole … we would be hard pressed to lend this guy a dime out of our pocket.”
Quicken CEO Bill Emerson responded, “Where is the upside on this one?”
Lyon answered: “[T]he only upside here is we have FHA insurance.”
Dan Gilbert and company has called the lawsuit and fishing expedition from the start. After motions in various courts on both sides, a trial was set to begin this summer. The matter was settled after going before a mediator.
The $32.5 total amounts to $22.5 to pay back the government for FHA-backed loans that went bad plus interest.