The Gloves Come Off

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Now, here’s the other side. The DOJ has filed suit against Quicken loans for the improper origination of FHA-insured loans (Return Fire). DOJ alleges that Quicken was somewhat remiss in their underwriting and approval of the FHA loans in question. The battle lines are drawn.

Quicken says they didn’t do anything wrong. DOJ says they made hundreds of FHA loans that were not done in accordance with FHA underwriting guidelines. Who is right? I guess we’ll see as the combatants move into the ring to fight it out in court.

The real issue at hand isn’t whether Quicken made some bad loans. It’s how many and why? All lenders make “business decisions” when reviewing loans for approval. Many factors go into such decisions. Some are judgment calls. Some are made because of pressures from entities to do more lending to first-time homebuyers and/or low to moderate income borrowers.

All the facts are not yet known in this case, however it is not beyond the realm of possibility that in the large volume of FHA loans made by Quicken (they are one of the largest FHA insured loan originators in the country) a few mistakes may have been made. Underwriters are human beings and human beings are prone to occasional errors.

But, do such errors rise to the level of an action against a lender by the DOJ under the False Claims Act? Maybe it was called for if there was a demonstrated pattern and practice of intentionally circumventing the rules to make loans that should not have been insured by FHA. Did Quicken employees make a few honest mistakes? Based on the lawsuit filed it appears the problem loans represent a relatively small percentage of the overall volume of FHA loans originated by Quicken during the period reviewed. Regardless, DOJ decided to make the fight.

It all goes back to quality and attention to detail. You must have the policies, procedures, systems and training to ensure your people are doing things the right way; that you’re following the rules. Regardless of what FHA, Fannie, Freddie, or CFPB say, the DOJ is out there looking.

Recently, the FHA said they would allow lenders some slack when it came to errors on FHA loans. They would not take action when errors were deemed minor and had no real adverse effect on a loan’s performance. It doesn’t look like the DOJ is willing to follow suit.

Don’t wait and don’t plan on things getting any easier. FHA, Fannie Mae, and Freddie Mac have all made it their goal and objective to improve loan quality and reduce loan defects. Your goal should be the same. This will satisfy their requirements while making things better in your company.

Reduced defects result in improved loan quality, less processing time, fewer delays, faster closings, quicker delivery and funding with improved loan performance. All will lead to happier customers, increased business, and higher profits. It also puts you in a much stronger position to defend against action brought by DOJ or other regulators. Now that’s something to fight for…

• Do you have a formalized pre-closing audit program in place?
• Are your people being properly trained?
• Do they fully understand how to do their job?
• Do you have systems in place to monitor loan and employee activity?

Do you carefully monitor what is documented, when and how? Documentation can make or break you when it comes to a court fight.

The battle goes on. Are you prepared to fight the good fight…and win?

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.