On April 17, 2015, Detroit-based mortgage provider Quicken Loans, Inc. filed suit in the United States District Court of the Eastern District of Michigan against the United States, the Department of Housing and Urban Development (“HUD”), HUD’s Office of Inspector General (“HUD OIG”) and the Department of Justice (“DOJ”). Quicken’s lawsuit represents a unique offensive move, challenging the fundamental fairness of federal investigative techniques which Quicken argues amount to abuse of governmental authority.
The complaint arises from Quicken’s role as the largest originator of FHA-insured loans in the United States and explains that, in spite of the fact that the company also boasts the lowest FHA default rate in the country, it was targeted by the DOJ for investigation sometime in 2012. Although the government allegedly told Quicken it was part of a compliance check into all large FHA loan providers, the lender grew concerned as the process dragged on and grew more aggressive. Ultimately, Quicken claims that the once-routine investigation morphed into a three year battle, during which the DOJ subpoenaed over 85,000 documents, took sworn testimony from multiple Quicken representatives, and threatened to file a high profile lawsuit against Quicken.
The DOJ and HUD OIG allegedly demanded that Quicken: (1) pay for seven and eight figure hypothetical losses calculated through a faulty, unrepresentative loss model; and (2) publicly (and, Quicken alleges, falsely) admit that its lending practices were flawed. Quicken claims that this demand was based on nothing more than 55 loan files “cherry-picked” from more than 246,000 FHA loans closed by the company. Quicken’s complaint alleges use of unreliable sampling methodology by the DOJ and HUD OIG, and that none of the agencies’ concerns with these 55 loans were material to any overall credit risk or cause of default. Quicken alleges the investigation wrongfully treated any suspected or minor FHA guideline non-compliance as a potential violation of the False Claims Act. By doing so, the lender claims both DOJ and HUD OIG overstepped their regulatory authority and placed the entire FHA program in jeopardy, as lenders fear the type of governmental scrutiny similar to that which Quicken experienced.
Quicken seeks two forms of relief in its complaint. First, Quicken asks the court to enjoin the faulty government methodology being used to determine loan compliance. Second, Quicken requests a declaratory judgment that any loans Quicken originated from the 2007-2011 time period were in compliance with the applicable FHA guidelines and program requirements.
With this lawsuit, Quicken aggressively seeks to change the dynamic of its dialogue with HUD regarding FHA mortgages that Quicken originated. It remains to be seen whether this tactic will bear fruit, or what long-term effects such investigations will have on lenders who offer FHA loans.