A History Of Fraud Allegations + Gilbert’s Inflated Ego = No More Quicken Loans
Last week, the U.S. Department of Justice filed a lawsuit against Detroit based Quickens Loans under the False Claims Act alleging that Quicken Loans bullied appraisers in order to receive higher values for applicants and that underwriting managers encouraged underwriters to “fudge” the incomes of hundreds of applicants.
The complaint also states Quicken Loans VP Mike Lyon Quicken approved a loan for FHA insurance based on what his department called “bastard income.”
He explained Bastard Income was income that was plausible to the investor even though underwriting knows its creation comes from
something evil and horrible.
Quicken Loans Owner Dan Gilbert Starts A Media Blitzkrieg
Dan Gilbert runs Quicken Loans as if it was a rogue Scientology cult.
So Gilbert attempted to launch a David Miscavige style media blitz on Friday night. He tried to convince his hometown newspapers that the lawsuit is a government shakedown. Gilbert claimed HUD was on a “witch hunt”.
Gilbert told the Detroit Free Press on Friday:
They’re talking about an investigation that ran for three full years, 85,000 documents subpoenaed … and this is what they come up with — a few anecdotes and a few fragments of chains of e-mails taken out of context.
Gilbert did manage to convince someone in Detroit media to write something flattering about him. Detroit News Columnist Nolan Finley wrote a gushing love letter of Gilbert.
Gilbert had a Twitter meltdown on Sunday night saying:
Quicken Loans Has Been Accused Of Mortgage Fraud Before
This isn’t the first time Quicken Loans has been accused of bullying appraisers to jack up property values. It is also not the first time they have been accused of “fudging” the incomes of loan applicants.
Quicken Loans was successfully sued in 2011 for inflating appraisal values in West Virginia.
The judge in that case even said on the record:
Quicken committed fraud by misleading her about the details of her loan, charging excessive fees, and using an appraisal that exaggerated the value of her home by nearly 300 percent. The judge called the lender’s conduct “unconscionable.
Quicken Loans initially denied any wrongdoing in the West Virginia case until a jury found that they had committed fraud. A jury found that the Quicken Loans appraiser appraised the property at 300% of it’s market value. The jury also found Quicken Loans had lied to the homeowner about her Option-ARM loan.
Quicken changed their tune when they realized that the judge and local media weren’t believing their BS. Quicken Loans Executives threw an unnamed low-level employee under the bus for the fraud.
According to Investigative Reporter, Michael Hudson:
During the trial, an attorney for the company argued there was no evidence that Quicken colluded with the appraiser or “did anything usual or anything inconsistent with industry practice.” In a court filing in September relating to the question of punitive damages, the company described the problems with the loan as an “isolated incident” created by “mere excess of zeal by a poorly supervised, low level, former employee.
Former Employees Allege Mortgage Fraud
Former employees sued Quicken Loans for unpaid overtime in 2010. Employees brought up claims mortgage fraud. According to Hudson:
Employees have also come forward to claim that they were instructed to lie to homeowners and to falsify income in order to make a deal work. Homeowners like Graham and Janet Higton of Arizona who claims in a federal lawsuit that a Quicken Consultant inflated their monthly income to $8000 and then steered them into an Option-ARM loan which they didn’t understand.”
According to Hudson, Quicken denied any responsibility:
The False Claims Act Lawsuit
The False Claims Act lawsuit filed by the DOJ was a result of a three-year investigation by HUD. HUD oversees FHA. Gilbert alleges HUD only found problems in 55 loans from September of 2007 through December 31, 2011.
Gilbert also claims HUD subpoenaed over 85,000 loans. 85,000 loan files seem highly unlikely. It sounds like Gilbert made up the number in an attempt to play the victim.
FHA loans unlike Fannie Mae or Freddie Mac loans are originated and held by private lenders. Ginnie Mae insures the lender against any loss if the homeowner goes into foreclosure.
HUD monitors any loans they have to pay a claim on. They also have systems that alert them if there is series of defaults in loans originated by a specific lender. HUD officials pay the lender a visit. They examine the files that they have paid a claims on.
HUD requests to review of all loans they deem may be at risk of default if they see a pattern.
HUD alleges they found fraud and damaging emails from executives trying to cover up the fraud. The amount HUD paid out to cover deficiencies is unknown. However, the Detroit News claims:
This dollar figure sounds exaggerated based on the 55 loans Gilbert claims the DOJ found problems with. Gilbert’s claim of 55 loan files only allows for a maximum fine of closer to $15 million.
HUD would need to find roughly 200 or more loans riddled with fraud to pursue a $100 million settlement.
Dan Gilbert Could Lose Everything Because He Doesn’t Know When To Shut Up
Dan Gilbert is an arrogant guy. This is why he chooses to play a dangerous game with the federal government. It’s a game that could screw his employees and cost him everything.
FHA could kick Quicken Loans out of FHA regardless of how the lawsuit turns out. Quicken would lose its ability to write FHA loans and its ability to write Reverse Mortgages. Quicken Loans originates Reverse Mortgages under it’s One Reverse Mortgage division.
This means Gilbert loses being able to pal around with the Fonz. Quicken Loans would lose nearly 35% of its business.
Gilbert needs to learn the lesson of the now-defunct TopDot Mortgage. The Long Island based lender was accused of the same thing Quicken in 2010. TopDot also had a very similar business model as Quicken Loans.
Ginnie Mae and HUD had allowed TopDot to originate and sell FHA loans. They allowed them to sell them on the secondary mortgage market. This is despite the fact that TopDot had been sued for misleading borrowers. HUD investigation audited the $181 million in FHA loans Topdot originated and found massive fraud. Several TopDot executives eventually went to prison. TopDot did exactly the same thing Quicken Loans is accused of. Topdot was also busted for lying about the income of mortgage applicants and pushing appraisal values.
Quicken Loans could find themselves under the microscope of HUD if it is proven Quicken Loans did commit fraud