A federal judge on Thursday dismissed a preemptive lawsuit filed by Quicken Loans Inc. in April that accused the federal government of trying to strong-arm the Detroit-based mortgage lender into a big settlement over its lending practices.
Quicken filed the lawsuit just days before the Justice Department sued the mortgage lender for allegedly underwriting improper Federal Housing Administration-insured loans.
Judge Mark Goldsmith in Detroit granted the Justice Department’s motion to dismiss the initial lawsuit from Quicken, which also sought to have the Justice Department’s primary case against the mortgage lender heard in a Detroit courtroom rather than in Washington.
The lawsuit against Quicken Loans is still pending in U.S. District Court in Washington, D.C., and will now be heard there.
That complaint accuses Quicken Loans of knowingly submitting hundreds of improperly underwritten loans from 2007 through 2011 that were insured by the FHA.
Quicken Loans founder and Chairman Dan Gilbert in the past has called the allegations baseless and denounced the government’s three-year investigation of Quicken as flawed.
Quicken has been ranked the nation’s top FHA lender based on volume and it claims to have the best-performing FHA loan portfolio based on default rate.
“This temporary procedural setback does not deter Quicken Loans from exposing the truth about the DOJ’s egregious attempts to coerce unjust ‘settlements’ from its victims including Quicken Loans by using the guise of the heavy hand and power of the federal government in doing so,” Quicken CEO Bill Emerson said Thursday in a statement.
A Justice representative was not immediately available for comment. Quicken claims the Justice Department sought a settlement in the “hundreds of millions of dollars.”
In his 24-page decision, Judge Goldsmith agreed with an argument made by the Justice Department’s lawyers that Quicken filed its preemptive lawsuit in Detroit in hopes of getting the government’s complaints against the company heard in Detroit as well.
“Given the procedural posture in this case, it certainly appears as though Quicken’s complaint was filed for the purpose of acquiring a favorable forum,” the judge wrote. “Quicken filed its lawsuit less than a week before the looming (government) enforcement action was filed.”
Judge Goldsmith said the pending case against Quicken in Washington would be “the preferable arena” to resolve the controversies between it and the Justice Department, such as the government’s use of a sampling method rather than loan-by-loan review to determine which Quicken loans were improperly made.
Legal experts previously called Quicken’s preemptive strategy a legal long-shot.
In its main complaint against Quicken, the Justice Department claims the company’s management emphasized quantity over quality when approving and underwriting FHA-insured mortgages. Justice accuses Quicken employees of inflating borrowers’ income or the appraised values of houses in order to get unqualified people into mortgages.
The lawsuit claims that Quicken didn’t need to worry about the loans going bad because they were guaranteed by the government. The government has not disclosed a monetary figure for HUD’s losses related to the allegedly improper Quicken loans.
Gilbert recently told Reuters that Quicken Loans is considering bowing out of the FHA program altogether, or at least cutting risks it takes in the program.
Other big FHA lenders have been scaling back amid their disagreements with the agency over how to handle loans that sour, the news service reported.
“Quicken Loans and other lenders no longer operate with any certainty as to the rules and standards for FHA lending,” Quicken said in Thursday’s statement. “That is the reason why there has been a stampede out of the FHA program by numerous large banks over the past two years.”
Quicken’s CEO also said he hopes the judge in Washington will decide anyway to move the pending case to Detroit, “the place where our loans are originated and every person expected to testify for Quicken Loans is located,” Emerson said.
The FHA program provides mortgage default insurance to lenders such as Quicken Loans, which can make a claim on a federal fund if a loan goes bad. FHA loans can have as little as 3.5 percent down payments and are popular among borrowers with lower income or credit scores who might have trouble qualifying for a conventional mortgage.
