"Quicken" the Development of the Law
Over the last few years, the US Department of Justice has reached settlements with nearly every major lender with regard to the lending procedures for FHA (Federal Housing Administration) loans. The legal basis for the settlements were alleged violations of the False Claims Act. The total recovery is about $3 billion dollars.
In the wake of lengthy and expensive investigations and negotiations, lenders have basically . . . whined. Jamie Dimon said the company was "thoroughly confused" by the FHA's investigations and said he was going to "figure out what to do." That task might be a whole lot easier due to Chase's competitor, Quicken Loans. On Friday, Quicken sued the Department of Justice and the Department of Housing and Urban Development, asking the court for a declaratory judgment and injunction that would halt the government's efforts to bring Quicken to settle its alleged FHA liability. I love this lawsuit!!!
I applaud the lawsuit because the single thing that the mortgage market needs most is certainty. What is the legal standard for evaluating compliance with FHA's policies and procedures? Is the sampling that the government used in its negotiations a permissible strategy or does it contravene HUD regulations and basic principles of fairness? In its complaint, Quicken asks the court to determine "that the loans that Quicken made between 2007-2011 in fact were originated properly by Quicken Loans in accordance with the applicable FHA guidelines." This is exactly what we need--some law making.
The adjudication of this case, in a public forum and potentially with a jury, should clarify the rules of the FHA program and the degree of future liability risks. Once these are known, lenders can make sound business decisions about being FHA lenders. Instead of "confused" and "cautious," mortgage companies can be clear and certain about their FHA business (if any). And the regulators or Congress can adjust the law in reaction. And lenders can adjust their business in reaction. And so on.
Do you know what I call that cycle? Progress. The making of law. A healthy market situated in a fair government. Win or lose, I think Quicken did the mortgage markets and potential FHA borrowers a big favor in pushing this issue to resolution. As Elizabeth Warren has pointed out, financial institutions should admit wrongdoing if they did wrong. The corollary is that government should not force settlements and billions out of financial institutions if they were compliant. In the United States, we have courts and litigation to make these decisions. The worst injustice here would be a settlement that retards the development of law, not whatever wrongs allegedly committed by either Quicken or the DOJ.