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32 QUICKEN LOANS, FEDERAL GOVERNMENT TRADE LAWSUITS Quicken Loans turned the federal government from attack mode to defense after filing a lawsuit against two of its agencies. Quicken, the largest lender of Federal Hous- ing Administration (FHA) mortgage loans in the country, filed its suit in the U.S. District Court for the Eastern District of Michigan against the U.S. Department of Justice (DOJ) and the Department of Housing and Urban Development (HUD), claiming the agencies have been trying to bully the company into making "blatantly false" statements and demanding the company pay "an inexplicable penalty or face legal action," accord- ing to a statement released by Quicken in April. Quicken has been under FHA investigation for three years as part of federal scrutiny into pre-crash practices of mortgage lenders. Quicken, however, is pulling no punches in defending itself publicly against what it considers unwarranted threats stemming from faulty analysis of "a min- iscule number of cherry-picked mortgages from the nearly 250,000 FHA loans the company has closed since 2007," the statement said. "By the FHA's own objective public reporting, Quicken Loans has been, and is currently, ranked the highest quality (lowest default rate) lender of any FHA originator in the country," the statement said. Quicken Loans is represented in the suit by Michigan-based Morganroth & Morganroth and Goodwin Procter of Washington, D.C. e Detroit-based lender claims the govern- ment has enjoyed "extraordinary profitability for FHA's insurance program" through its efforts, saying the company's participation in FHA's program will earn the government more than $5.7 billion in net profits "from the insurance premi- ums collected above and beyond claims made from over $40 billion in FHA home loan volume closed by Quicken Loans during the 2007 to 2013 timeframe." Quicken claims it provided the DOJ with more than 85,000 documents, includ- ing 55,000 emails, as requested during Justice's three-year investigation that involved "hundreds of hours of depositions from numerous Quicken Loans team members," according to the state- ment. "After three years of struggling to understand the DOJ's position and methodology," said Quicken CEO Bill Emerson, "it is time to ask the court to intervene. It's a shame the DOJ would choose to at- tack the country's largest and highest quality FHA lender … at the very time our nation needs ex- panded access to credit for middle-class Americans who benefit most from the FHA program." Emerson went on to say his company's suit against the federal government is an effort to keep the government from thinking it is above accountability. "e Constitution provides for checks and balances among the three branches of government," he said. "We are confident that after examining the facts, the judicial branch will exercise their author- ity to provide just relief from this misuse of power." Less than a week after Quicken Loans sued the DOJ and HUD, the DOJ filed a lawsuit against Quicken accusing the lender of improp- erly originating and underwriting FHA-insured mortgages, according to an announcement from the DOJ. "ose who do business with the United States must act in good faith, including lenders that participate in the FHA mortgage insurance program," said Principal Deputy Assistant At- torney General Benjamin C. Mizer of the Justice Department's Civil Division. "To protect the housing market and the FHA fund, we will con- tinue to hold responsible lenders that knowingly violate the rules." According to the government's complaint, Quicken knowingly submitted or caused the submission of hundreds of improperly underwrit- ten FHA-insured loans as a direct endorsement lender (DEL) from September 2007 through De- cember 2011. HUD relies on DELs to ensure the loans endorsed for FHA insurance follow proper guidelines, since neither FHA nor HUD reviews the underwriting of a loan before it is approved for FHA insurance. If a loan that has been approved under the DEL program later defaults, the loan's holder may submit an insurance claim to HUD for the losses caused by the default. e government alleges Quicken had a "value appeal" process in place in which Quicken would request an inflated value for a home appraisal if the appraisal was too low to approve for a loan and that the lender granted "management exceptions" in which managers would allow underwriters to break the rules to approve a loan. According to the complaint, Quicken's most senior executives were aware of these practices based on several emails, including one that said, "I don't think the media and any other mortgage company (FNMA, FHA, FMLC) would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values." HUD, according to the DOJ, paid millions of dollars in insurance claims due to defaulted loans that were approved with Quicken's deficient underwriting practices. e complaint also claims Quicken did not have adequate controls in place to identify the deficient loans and it failed to report to HUD the deficient loans it did identify. "e complaint alleges that Quicken approved loans that should not have been approved and sub- mitted them for FHA insurance," HUD Inspec- tor General David A. Montoya said. "e alleged cost to the FHA insurance fund was millions of dollars and hopefully this serves as reinforcement to Quicken that doing the wrong thing really never is worth it." e DOJ is seeking "the amount of the United States' single damages to be proven at trial, plus civil penalties as are required by law in the amount of $5,500 to $11,000 per violation of the False Claims Act, post-judgment interest, costs, and such other relief as may be necessary and proper" in addition to "compensatory damages" and "such other relief as the court deems just and proper." In response, Quicken accused the DOJ of perpetrating a "witch hunt" against them and of continuing "abusive practices." "e complaint filed today is riddled with inaccurate and twisted conclusions from frag- ments of a handful of emails cherry-picked from 85,000 documents that the DOJ subpoenaed," Quicken said. "Worse than that, the DOJ appears to be basing their entire case on a handful of out-of-context email conversations skimmed from the communication between Quicken Loans em- ployees. ese conversations relate to a miniscule number of loans out of the nearly 250,000 FHA mortgages the company has closed over the past seven years." Quicken CEO Bill Emerson

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