Mortgage Mess: Why Quicken Loans May Not Be as Squeaky Clean as It Claims

Mortgage Mess: Why Quicken Loans May Not Be as Squeaky Clean as It Claims

Quicken Loans‘ lending practices may not be as exemplary as the company contends. A federal lawsuit starting in Detroit today and other legal action against the nation’s largest online mortgage lender paint a decidedly less flattering picture of Quicken, reports Michael Hudson, a staff writer with the Center for Public Integrity.

Quicken founder and chairman Dan Gilbert, owner of the NBA’s Cleveland Cavaliers, has sought to distance his company from the actions of notorious predatory lenders such as Ameriquest and Countrywide. Quicken has also capitalized on that image, touting its high ranking in consumer surveys, top grade from the Better Business Bureau and repeated listing by Fortune as one of the “100 Best Companies to Work For.” Yet allegations by former employees and customers bear a disturbing resemblance to the reckless, often illegal lending that marked the years leading up the housing crash. Hudson writes:

They accuse the company of using high-pressure salesmanship to target elderly and vulnerable homeowners, as well as misleading borrowers about their loans, and falsifying property appraisals and other information to push through bad deals….

A group of ex-employees, meanwhile, have gone to federal court to accuse Quicken of abusing workers and customers alike. In court papers, former salespeople claim Quicken executives managed by bullying and intimidation, pressuring them to falsify borrowers’ incomes on loan applications and to push overpriced deals on desperate or unwary homeowners.

In the Michigan suit, former employees are seeking overtime pay they say Quicken owes them. Documents in the case also claim that the company encouraged some borrowers to overstate their income. [Note: Business software maker Intuit (INTU) bought Quicken, then called Rock Financial, from Gilbert in 1999. He and other investors repurchased the company from Intuit in 2002. Quicken is today privately held, while Intuit continues to market Quicken personal finance tools.]

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Mortgage monsters

As Hudson recently documented in his book, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America and Spawned a Global Crisis, aggressive sales tactics were a hallmark of the abusive lending that led to the housing crash. Quicken uses similar methods, said a former loan salesman at the company in a sworn statement. He claimed managers pressured salespeople to boost their commissions by “locking the customer into a higher interest rate, even if they qualified for a lower rate, and rolling hidden fees into the loan.”

Another feature of the subprime bubble was lenders’ widespread use of adjustable rate mortgages, often pressed on financially gullible borrowers who were unaware of the risks. Gilbert has stated that Quicken avoided riskier lending, telling The Plain Dealer in 2009 that “We never did these kinds of loans that really started this mess, the subprime loans.”

But at least one court ruling and litigation by homeowners against Quicken cast doubt on whether the company has been as responsible in its lending as Gilbert maintains. Last year, a West Virginia court found Quicken guilty of fraud for misleading a mortgage borrower, gouging her on fees and wrongly inflating the value of her home. Hudson notes that the judge overseeing the case described the company’s conduct in the case as “unconscionable.”

ARMs self-destruct

Meanwhile, multiple borrower lawsuits against the company center on its issuance of ARMs. One Ohio County, W.Va., resident, Janyce Duncan, filed a complaint after Quicken in 2005 put her into a $109,000 interest-only loan and a $27,000 home equity credit line. (On its Web site, Quicken says it doesn’t currently offer interest-only products because of “market conditions.”) The company and a third-party appraisal firm inflated the value of her house by nearly $40,000, she alleged. Duncan’s lawyer said she later tried to sell the home, but failed because the property’s value was worth less than what she owed on her loans.

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