Tuesday, December 20, 2016

The Quicken Loans Signal

Jeff Sessions can review and drop a bad anti-business prosecution.


By Review & Outlook
The Wall Street Journal
December 20, 2016

Faster than a Rocket Mortgage, Attorney General nominee Sen. Jeff Sessions can send a message that the Obama era of arbitrary, political prosecutions of business is over. Soon after confirmation, he and his new team should review and then kill the government’s dubious civil case against Quicken Loans.

The Justice Department last year sued the Detroit-based mortgage lender on charges that it knowingly approved loans that violated Federal Housing Administration rules for government mortgage insurance. The charges didn’t make Quicken Loans unique, as the Obama Administration has spent years wringing settlements out of lenders without having to prove its charges in court.

Last week Justice issued a press release celebrating that since January 2009 it has extracted more than $7 billion using a single legal technique—False Claims Act cases related to federally insured mortgages. In the larger campaign to blame the 2008 financial crisis entirely on private business—rather than federal housing and monetary policy—the government has raided banks for more than $100 billion.

So it was no surprise that Justice wanted a bite of Quicken’s earnings. What may have surprised the feds, given the normal corporate desire to write a check and make Washington go away, is that Quicken founder Dan Gilbert had no desire to settle.

Mr. Gilbert tells us that “it would lack integrity and ring hollow to our 17,000 employees to pay some large, unwarranted settlement and admit things we did not do just because a young lawyer walks in with a business card that says ‘DOJ’ on it.” Mr. Gilbert, who owns the National Basketball Association’s Cleveland Cavaliers, seems ready to compete in the courtroom, too.

The government’s case is built on a handful of internal Quicken emails with disparaging comments about particular loans. But if some great offense has been committed, it’s hard to find it in the records kept by the alleged victim.

A critical metric the FHA uses to judge lenders is known as the “compare ratio.” Specifically, it compares the rate of early defaults and claims generated by one lender with the rate generated by other lenders who cover the same area. A lender that never originates a bad loan would have a ratio of 0% and a lender with an average rate of defaults would be marked at 100%. According to the government’s own data, Quicken’s compare ratio is 35%—not merely better than average but the best score among all large national lenders.

Mr. Gilbert says his company offered to “step in to FHA’s shoes and take over providing insurance on our FHA loans; meaning we would collect the premiums on the loans and pay out any claims. Not surprisingly, they weren’t interested.”

Federal Judge Reggie Walton recently rejected the government’s attempt to hold a trial in Washington instead of Quicken’s home state of Michigan. But not holding a trial at all would be the wisest course, not least because Justice is likely to lose in court. By dropping the case, Mr. Sessions can show that the Justice Department is done extorting business for political show. All Trump cabinet officers should send similar tidings to ring in a new era of growth.


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