Financial Services Lawyers Cheer Quicken Loans' Lawsuit

A legal challenge by Quicken Loans Inc. to the U.S. government's aggressive scrutiny of its Federal Housing Administration (FHA) mortgage loans reflects widespread industry unease with government investigation of lenders, financial-services lawyers said.

“All of the lenders that we've worked with have basically felt the same way as Quicken Loans in terms of the process and the changing of the rules of the game,” says Jeff Naimon, a partner at BuckleySandler in Washington. He defends banks and other financial-services companies but isn't involved in the Quicken Loans case.

The FHA approves lenders to issue loans backed by its mortgage insurance, which protects the banks against homeowner default.

Quicken Loans says the government threatened to invoke the False Claims Act unless the company paid a “large financial penalty” and confessed wrongdoing in its FHA lending. On April 17, the company sued the Justice Department and the U.S. Department of Housing and Urban Development, which runs the housing agency. See the Complaint at http://bit.ly/1zGxByy.

The company denies wrongdoing and claims the government's threat was “based only on a skewed, cherry-picked and unrepresentative sampling of 55 FHA loans out of more than 246,000 FHA loans closed by the company.”

Quicken Loans' legal claims include violations of the Fifth Amendment's due process clause and of the Administrative Procedures Act (APA), including arbitrary and capricious agency action.

The case highlights a concern that many housing administration-approved lenders have voiced in public and private, says Larry Platt, a Washington consumer financial services-partner at K&L Gates, who also isn't involved in the case. Lenders believe the Justice Department's “ferocious quest for settlement dollars under the False Claims Act is long on pressure and short on false claims,” he says.

“It is nice to see a company fight what appear to be unfounded allegations against a company in the financial-services space,” says Richard Eckman, a Wilmington, DE, partner at Philadelphia-based Pepper Hamilton. He chairs the firm's financial-services practice.

Eckman, who also isn't involved in the case, says the government is “clearly using a very small subset of all the data to prove a violation of the law.”

Quicken Loans declined to comment beyond statements it made in its April 17 press release.

“After three years of struggling to understand the [Justice Department's] position and methodology that would warrant the country's largest and highest-quality FHA lender to make untrue admissions and pay an inexplicable penalty or face public legal action, it is time to ask the court to intervene,” Quicken Loans chief executive officer Bill Emerson said in that release.

Quicken Loans' lawyers in the case referred questions to the company. They include Thomas Hefferon, a Washington partner at Boston-based Goodwin Procter, and Jeffrey Morganroth, managing partner of Morganroth & Morganroth in Birmingham, MI.

“We would have no comment on ongoing litigation,” Housing and Urban Development spokesman Jerry Brown said.

In an e-mail, Justice Department spokesman Nicole Navas wrote that the department “generally does not comment on ongoing investigations.”

Sheri Qualters writes for The National Law Journal, an ALM sibling of this newsletter. She can be reached at [email protected].

A legal challenge by Quicken Loans Inc. to the U.S. government's aggressive scrutiny of its Federal Housing Administration (FHA) mortgage loans reflects widespread industry unease with government investigation of lenders, financial-services lawyers said.

“All of the lenders that we've worked with have basically felt the same way as Quicken Loans in terms of the process and the changing of the rules of the game,” says Jeff Naimon, a partner at BuckleySandler in Washington. He defends banks and other financial-services companies but isn't involved in the Quicken Loans case.

The FHA approves lenders to issue loans backed by its mortgage insurance, which protects the banks against homeowner default.

Quicken Loans says the government threatened to invoke the False Claims Act unless the company paid a “large financial penalty” and confessed wrongdoing in its FHA lending. On April 17, the company sued the Justice Department and the U.S. Department of Housing and Urban Development, which runs the housing agency. See the Complaint at http://bit.ly/1zGxByy.

The company denies wrongdoing and claims the government's threat was “based only on a skewed, cherry-picked and unrepresentative sampling of 55 FHA loans out of more than 246,000 FHA loans closed by the company.”

Quicken Loans' legal claims include violations of the Fifth Amendment's due process clause and of the Administrative Procedures Act (APA), including arbitrary and capricious agency action.

The case highlights a concern that many housing administration-approved lenders have voiced in public and private, says Larry Platt, a Washington consumer financial services-partner at K&L Gates, who also isn't involved in the case. Lenders believe the Justice Department's “ferocious quest for settlement dollars under the False Claims Act is long on pressure and short on false claims,” he says.

“It is nice to see a company fight what appear to be unfounded allegations against a company in the financial-services space,” says Richard Eckman, a Wilmington, DE, partner at Philadelphia-based Pepper Hamilton. He chairs the firm's financial-services practice.

Eckman, who also isn't involved in the case, says the government is “clearly using a very small subset of all the data to prove a violation of the law.”

Quicken Loans declined to comment beyond statements it made in its April 17 press release.

“After three years of struggling to understand the [Justice Department's] position and methodology that would warrant the country's largest and highest-quality FHA lender to make untrue admissions and pay an inexplicable penalty or face public legal action, it is time to ask the court to intervene,” Quicken Loans chief executive officer Bill Emerson said in that release.

Quicken Loans' lawyers in the case referred questions to the company. They include Thomas Hefferon, a Washington partner at Boston-based Goodwin Procter, and Jeffrey Morganroth, managing partner of Morganroth & Morganroth in Birmingham, MI.

“We would have no comment on ongoing litigation,” Housing and Urban Development spokesman Jerry Brown said.

In an e-mail, Justice Department spokesman Nicole Navas wrote that the department “generally does not comment on ongoing investigations.”

Sheri Qualters writes for The National Law Journal, an ALM sibling of this newsletter. She can be reached at [email protected].