Judge orders Quicken Loans, Justice Department to mediation

A federal judge has ordered Quicken Loans Inc. and the U.S. government to mediation as the trial date nears for the case in which the mortgage lender is accused of ignoring red flags in home loans that didn't meet federal standards.

U.S. District Judge Mark A. Goldsmith filed Friday an order that the parties meet with Gerald Rosen, the retired chief judge of the U.S. District Court for the Eastern District of Michigan, in efforts to develop a settlement prior to the trial scheduled for Aug. 5.

"With summary judgment motions having been filed and this case approaching a potential period of intense trial preparation," Goldsmith wrote, "the Court concludes that it would be prudent for the parties to make a renewed effort to resolve this matter."

Such orders are typical in federal civil lawsuits, said David Ashenfelter, public information officer for the federal court in Detroit.

Dan Gilbert, Quicken's founder and chairman, has said the Detroit-based company won't settle. Jeffrey Morganroth, the company's attorney, echoed that sentiment Friday.

"We’re certainly going to comply and attend and participate in mediation," he said. "We'll fight to the end. This case never should go to trial, and we will continue to do that until the case is dismissed. If it is not, we are prepared to go to trial. We are confident there is no case here."

The company submitted last month motions to have the case dismissed and the government's experts striked, Morganroth said.

A spokeswoman for the U.S. Justice Department's Office of the United States Attorneys was not immediately available.

A lawsuit filed by the government in April 2015 against Quicken charges that the lender's loans involved inflated appraisals, poor credit risks and borrowers with insufficient incomes. Quicken denies the government's accusations.

Rosen has presided at previous mediation sessions with the parties. He was the court's chief justice from 2009 to 2015, after President George H. W. Bush nominated him to the federal court bench in 1989. Rosen oversaw a number of high-profile cases during his tenure, and he led the mediation team that helped Detroit exit its record-setting bankruptcy in just 18 months.

After retiring as chief justice, Rosen opened a Detroit branch of Judicial Arbitration and Mediation Services.

The government has alleged that Quicken had a culture of bending the rules and gave “speed bonuses” to underwriters. The mortgage company failed to disclose the problems with the Federal Housing Administration-insured loans that cost the federal government millions of dollars when they went bad, federal lawyers contend.

Quicken has said it has represented the FHA’s “gold standard” for underwriters. Court documents filed by Quicken attorneys say the company can prove it had proper underwriting practices, complied with program and contractual requirements, and did not make false claims. It denies the existence of speed bonuses.

Quicken is the largest FHA lender in the country. It has closed more than 550,000 FHA loans valued at $90 billion since 2007.

The Justice Department and the U.S. Department of Housing and Urban Development Office of Inspector General began investigating Quicken under the False Claims Act.

The original scope of the investigation encompassed about 246,000 FHA loan Quicken had originated from mid-2007 through Dec. 31, 2011. The number of loans in question, however, has been severely reduced to 109, Morganroth said.

"There is a chance now that the government has seen how weak their argument is, and maybe this can be successful in mediation," he said. "We think we have shown they can’t win this case. They don’t have any facts to support this case."

In an order last year, Goldsmith said the reduction in loan findings at issue reduces the burden of expert testimony the government needs to prepare.

The federal government’s lawsuit alleged Quicken employees regularly spoke of “fudging” a borrower’s income to get approval for FHA insurance. It included emails from company officials discussing the “bastard income” of borrowers. One email described how a customer was approved for a loan after he stopped paying other bills and his credit score dropped 100 points.

Since the financial crisis, the Justice Department has reached settlements totaling billions of dollars with several major lenders, including J.P. Morgan Chase & Co., SunTrust Banks Inc. and U.S. Bancorp, over poorly underwritten FHA loans.

Quicken also sued the government, claiming the U.S. Justice Department unfairly targeted major lenders after the 2008 mortgage crisis. Goldsmith dismissed the suit.

The Justice Department originally filed the case in Washington, D.C., but Quicken won its motion to move it to Detroit.

bnoble@detroitnews.com