What's at stake in the quicken loans case.

Author:Pfotenhauer, Kurt

RARE IS THE COMPANY THAT FIGHTS the federal government, but Detroit-based Quicken Loans is up for the challenge. The Department of Justice (DOJ) recently sued the company--which originates Federal Housing Administration (FHA) loans--on the charge that it made false claims to the federal government. Quicken, however, has responded with a countersuit of its own and is raring for a fight.

As proof of the law of unintended consequences, DOJ's suits against Quicken and other lenders originating FHA loans--loans meant to help low- and middle-income Americans get into homes--may actually prompt a reduction in the issuance of these loans.

The genesis of the DOJ suit against Quicken began nearly three years ago, when the agency started targeting major mortgage loan originators for mistakes they allegedly made at the height of the financial crisis. It has since extracted substantial settlements from many large lenders. Its complaint against Quicken is no different than its complaint against some other financial institutions: The company knowingly submitted insurance claims for hundreds of improperly underwritten FHA loans. The agency is also using a Civil War-era law--the False Claims Act--as one of the foundations of its case.

Quicken rejects the federal government's claims, accusing DOJ of having a "political agenda" in the wake of the financial crisis. The company even filed a lawsuit against the agency a week before the government's case was filed, in which it claimed that DOJ threatened a "high-profile lawsuit" if it did not publicly admit wrongdoing and pay a substantial penalty.

Quicken's case rests on a simple assertion: It will not admit to a wrong that it did not commit. It also points out that it has an impeccable track record of customer satisfaction and is the "premier example of quality in the entire home-lending industry," for which it has been recognized by independent firms.

So how did this situation come to be?

The federal government's actions against mortgage lenders have been made possible by a dramatic shift in how it works with mortgage loan originators to address potential problems in their loans. Prior to DOJ's involvement, the Department of Housing and Urban Development (HUD), which issues FHA loans, dealt with every potential issue on a case-by-case basis. This policy recognized the individualized nature of home mortgages, because every loan is issued under unique circumstances specific to the individual or family who takes...

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