Just days after Quicken Loans, Inc. filed suit against the Department of Housing and Urban Development (“HUD”), HUD’s Office of Inspector General (“HUD OIG”) and the Department of Justice (“DOJ”) in Detroit claiming it was wrongly targeted for minor FHA violations, the DOJ responded by filing its own suit in the U.S. District Court for the District of Columbia. While Quicken’s April 17, 2015 complaint claims the DOJ attempted to strong-arm Quicken into settling potential False Claims Act violations for millions over minor FHA non-compliance issues, the DOJ’s April 23, 2015 complaint alleges that Quicken routinely broke HUD rules to approve ineligible loans on a grand scale, knowing that those loans would be insured by the FHA and therefore cause no loss to Quicken.  

The DOJ’s complaint alleges that Quicken engaged in a pattern and practice of falsely certifying FHA loans to high risk borrowers and treated FHA safeguards as mere suggestions. It cites instances in which Quicken certified loans to borrowers who routinely overdrafted bank accounts, and who did not meet the basic FHA requirements, such as using a mortgaged property as a primary residence. The complaint also refers to Quicken communications where the lender admitting that it “fudged” a borrower’s income, or where Quicken treated income derived from less than scrupulous sources as legitimate, qualifying income. The DOJ also accuses Quicken of requesting inflated appraisals to qualify loans, and claims that that Quicken routinely sent loans back to an appraiser when the amount came in at an underqualifying amount and requested a different value, whereby an appraiser would send the appraisal back with no change other than the appraised value of the property.  

Quicken also allegedly pressured its underwriting team to approve loans as fast as possible at the expense of accuracy, and allowed its team to manipulate key data, including borrower income. Quicken supposedly allowed underwriters the option to approve an FHA loan through a “management exception,” whereby underwriters could disregard FHA’s requirements and still approve a loan. Of such loans, Quicken allegedly admitted to the DOJ through its investigation that it should not have approved approximately 40 percent of the management exception loans. Furthermore, the DOJ asserts that while Quicken knew of the issues it had in approving loans, it took steps to hide its underwriting issues from HUD, failed to implement a quality control program, and did not fix its faulty practices. In fact, the DOJ claims that, although it had a duty to do so, Quicken failed to report a single underwriting deficiency to HUD from 2007-2011. 

The DOJ’s five-count complaint alleges not only violations of the False Claims Act, but also breach of fiduciary duty and negligence for failure to uphold the duty of reasonable care it owed to HUD through its FHA loan program. The DOJ requests treble damages, a $5,500-$11,000 fine per violation, and compensatory damages.

At this point, it is unknown whether Quicken’s preemptive strike suit last week influenced the DOJ’s complaint, whether Quicken will attempt to have the DOJ suit combined with its first-filed suit in Detroit, or how long or how publicly this this dispute will continue. We will continue to update developments here.