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Quicken Loans Accused of Violating False Claims Act with FHA Loans

Updated on May 3, 2015

Justice Department Takes Aim at Quicken Loans after Fraud Allegations

Mortgage lender Quicken Loans is facing a lawsuit in Washington, D.C. that accuses it of violating the False Claims Act by improperly originating and underwriting mortgages.

The Justice Department complaint accuses Quicken Loans of submitting hundreds of improperly underwritten loans insured by the Federal Housing Administration. The complaint says Quicken Loans employees disregarded FHA rules and falsely certified compliance with underwriting requirements to reap profits from FHA-insured mortgages.

The issue is important for District of Columbia residents because of a surge in jumbo loans being granted in the Washington area as home prices escalate quickly. FHA-insured loans are favored by banks and realtors because of the lower risk of default.

The Justice Department’s complaint filed in U.S. District Court for the District of Columbia cites e-mails from senior Quicken Loans executives indicating they knew of the company’s suspect lending practices.

One e-mail from the company’s operations director described a loan that was approved based on what he called bastard income, which he described as trying to put some kind of income together that is plausible to the investor even though we know its creation comes from something evil and horrible.

The Justice Department says the Department of Housing and Urban Development has paid millions of dollars of insurance claims on loans improperly underwritten by Quicken Loans. Other loans underwritten by Quicken Loans are at least 60 days delinquent and likely to result in further insurance claims that HUD will pay.

One example cited by the Justice Department mentioned a borrower whose bank account statement showed overdrafts in multiple months. During the loan application process, he requested a refund of the $400 mortgage application fee so he would be able to feed his family.

Nevertheless, Quicken Loans allegedly approved his loan. The borrower made only five payments before becoming delinquent, forcing HUD to pay an FHA insurance claim of $93,955.

Quicken Loans is authorized by the federal government to certify FHA-insured loans, but only if it follows regulations to check on the solvency of borrowers.

The Justice Department says the company granted itself management exceptions in which managers allow underwriters to break FHA rules to approve a loan.

U.S. Attorney John Walsh said in a statement that Quicken Loans issued hundreds of defective mortgage loans, and left HUD – and the taxpayer – to pay for the loans that defaulted.

Quicken Loans officials denied the Justice Department’s allegations and pledged to fight the lawsuit.


Quicken Loans Honesty Tested in Lawsuit

Do you think the Justice Department is right in suing Quicken Loans for alleged False Claims Act violations?

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    • Tom Ramstack profile image
      Author

      Tom Ramstack 2 years ago from Washington, D.C.

      In the end, everyone else could pay for mistakes and sloppy work of Quicken Loans if HUD has to pay insurance claims with taxpayer money.

    • lions44 profile image

      CJ Kelly 2 years ago from Auburn, WA

      I'm in the industry (IA for a bank) and this problem, despite Dodd Frank and other regulation, is not going away. Credit migration on indirect auto loans is going to be the next battleground. The numbers are scary. Nice article on an important topic.