Quicken Loans Faces Losing Billions Of Dollars If Found Liable Under False Claims Act

Detroit-based Quicken Loans has been sued by the DOJ today under the False Claims Act. The DOJ alleges that Quicken bullied appraisers to receive higher values for applicants. They also allege underwriting managers encouraged underwriters to “fudge” the incomes of hundreds of applicants.

The complaint also states Quicken Loans approved an FHA loan based on “bastard income.”

VP Mike Lyons explained bastard income was income that was:

Plausible to the investor even though we know its creation comes from something evil and horrible.

Lyon can be seen in this Quicken Loans promotional video:

The complaint also states that Quicken executives pressured underwriters to move things quickly. The company also improperly incentivized volume over quality and by paying underwriters prohibited commissions. This included “speed bonuses.”

Quicken also disciplined underwriters who were not reviewing loans fast enough by threatening them with termination.

Quicken Denies Wrong Doing As Usual

Bill Emerson, Quicken Loans CEO told the Detroit News with typical bravado that only an employee of Dan Gilbert’s could do:

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.

If Quicken loses its ability to underwrite FHA loans, it could lose nearly 50% of its revenue stream. Besides losing its ability to originate FHA loans, Quicken would also lose its ability to originate Reverse Mortgages through its One Reverse Mortgage brand. Reverse mortgages are insured by FHA.

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:

 Quicken describes some of the couple’s claims as “sheer nonsense” and says that the Higtons are attempting to “manipulate the system.

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:

 Gilbert would only say the proposed settlement was “nine figures,” suggesting it totaled more than $100 million.

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.

You can read all the juicy allegations below including admissions of wrongdoing by Quicken managers:

Quicken Complaint

Also, see:

Is This The End?