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Quicken Strides Into Legal Battle Vs. US Government

Quicken Loans prides itself on up-to-the minute technology, originating and tracking a mortgage business in real-time that extended to over $59 billion in mortgages last year. And, The Wall Street Journal reported Sunday (June 14), the organization is taking on a new strategy — under the helm of owner Dan Gilbert — which centers on suing the U.S. government.

The third largest mortgage lender in the nation is involved in a legal battle against Uncle Sam as the company fights back against charges levied by the government two months ago.

Those charges allege Quicken defrauded taxpayers by getting insurance for mortgages, via the government’s Federal Housing Administration, that were in fact ineligible to be covered.

The extent of the alleged ineligible payouts is significant, as prosecutors say that between 2007 and March of this year, the government paid more than half a billion dollars in claims on defaulted mortgages that had been endorsed by the mortgage lender. WSJ said Sunday that prosecutors have not in fact quantified how many of those payouts were in fact tied to fraudulent lending.

However, WSJ referred to an email from an unnamed Department of Justice spokeswoman that stated that “fraudulent origination activity resulted in significant losses of federal funds and is one of the precise types of conduct that caused the financial crisis and housing market downturn.”

Quicken Loans actually had filed its suit against the government before the Justice Department filed its own charges, with its accusations centering on the government “trying to illegally pressure the company into a big settlement,” WSJ said. The Feds “cherry-picked 55 FHA-insured loans out of the nearly 250,000 the company closed since 2007,” according to Quicken, which noted that insurance premiums in place alongside mortgages have had benefits for the FHA, as billions of dollars have been reaped from the insurance premiums tied to the loans.

Quicken, for its part, has been vocal about not being hobbled by investigations and regulators, noting that the company helps buoy the FHA program by extending loans to low- and middle-income borrowers. Those demographics have been marked by declining interest among larger financial institutions.

Prosecutors for the government are asking for a settlement that might tip into the hundreds of millions of dollars, WSJ reported, and any such sum would represent a large chunk of the $464 million that had been seen in net income for all of 2014.

Quicken has been building its brand via strong advertisement activity, with more than $451 million going to pay for marketing efforts.

Those efforts have paid off as the gain-on-sale margin (on loans sold to investors) is north of 3.6 percent, a ratio WSJ said remains better in the first quarter of 2015 than larger peers such as Wells Fargo at roughly 2 percent.

In the meantime, executives have shot down plans to go public, having shored up at least some financial firepower with bond issuances last month that brought $1.25 billion in proceeds to the company and Rock Holdings.

Quicken might branch out into other financial products, sources told WSJ, including other types of consumer credit, which would likely bow next year at the earliest.

 
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