June2016 - Chase[ing] the Dream

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42 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T DEPARTMENT ORIGINATION ORIGINATION LOCAL EDITION Quicken CEO Won't Budge on DOJ Mortgage Allegations QUICKEN LOANS CEO BILL EMERSON SAYS THE DEPARTMENT OF JUSTICE IS "DEAD WRONG" IN ITS MORTGAGE FRAUD ACCUSATIONS. MICHIGAN // Quicken Loans, the largest Federal Housing Administration (FHA) lender in the country, is standing its ground in a government lawsuit for allegedly knowingly submitting claims for hundreds of improperly underwritten FHA- insured loans. This is not the first time the online mortgage lender has pleaded its case against mortgage fraud allegations from the Department of Justice (DOJ). CEO of Quicken Loans, Bill Emerson, came forward in May to let the DOJ know that Quicken Loans will not settle and admit to committing fraud. According to an interview with CNBC's "Squawk Box," Emerson said, "For us, that's not something we can even begin to stomach," adding that he welcomes a jury trial. "[To] look our 12,000 team members in the eye and say, 'guess what, we committed fraud against the United States government' … we didn't. We won't say it." Emerson told CNBC that Quicken did make "simple mistakes," but the DOJ is "dead wrong" in its accusations of mortgage fraud. The lender filed a suit in April 2015 in the U.S. District Court for the Eastern District of Michigan against the DOJ and the Department of Housing and Urban Development. According to a statement released by Quicken, the agencies have been trying to bully the company into making "blatantly false" statements and demanding the company pay "an inexplicable penalty or face legal action." The Justice Department followed in less than a week with a suit against Quicken Loans accusing it of submitting or causing the submission of claims for hundreds of improperly underwritten loans insured by the FHA from September 2007 to December 2011. On the same type of issues, the DOJ has gone after many other lenders, which resulted in more than $100 million in mortgage settlements. The Detroit-based lender claims the government enjoyed "extraordinary profitability for FHA's insurance program." The company claims that their participation in FHA's program will earn the government more than $5.7 billion in net profits "from the insurance premiums collected from over $40 billion in FHA home loan volume closed by Quicken Loans during the 2007 to 2013 timeframe." "After three years of struggling to understand the DOJ's position and methodology," Emerson noted in a previous statement, "it is time to ask the court to intervene. It's a shame the DOJ would choose to attack the country's largest and highest quality FHA lender … at the very time our nation needs expanded access to credit for middle-class Americans who benefit most from the FHA program." U.S. Bancorp Escapes Most Banks' Q1 Fate THE BANK REPORTED A RISE IN RESIDENTIAL MORTGAGES OVER THE QUARTER AND OVER THE YEAR IN Q1. MINNESOTA // It has largely been a dismal first quarter for banks as far as profits go. In April, JPMorgan Chase, Wells Fargo, Bank of America, Citigroup, and PNC all reported substantial year-over-year de - clines. In the area of investment banking, Goldman Sachs and Morgan Stanley both reported significant over-the-year declines in net earnings. U.S. Bancorp went against that trend. In the bank's Q1 earnings statement, U.S. Bancorp reported a first-quarter net income of $1.386 billion, down by only 3 percent from Q1 2015's net income of $1.43 billion. The price per diluted common share, $0.76 percent, remained unchanged over the year in Q1. The bank's average total loans grew by 5.8 percent over the first quarter up to $14.3 billion, and ROE and efficiency ratio were reported at 13 percent and 54.6 percent, respectively. According to the announcement, lower mortgage revenue was partially behind U.S. Bancorp's 3 percent year-over- year decline in net income. The lower mortgage banking revenue was due to lower production and higher noninterest expense. Other factors that drove the slight decline in net income were a higher provision for credit losses driven by energy-related commercial loan downgrades. The bank experienced a 6 percent decline over the quarter in net income that was driven by, among other factors, seasonality in some of the bank's business lines and a higher provision for credit losses driven by energy- related loans. "U.S. Bancorp is off to a solid start in 2016 as we once again delivered industry-leading performance metrics against a backdrop of global concerns driving long-term interest rates lower and continuing pressure in the energy sector," U.S. Bancorp Chairman and CEO Richard K. Davis said. "We continued to produce strong loan and deposit growth which combined with a stable net interest margin, resulted in growth in net interest income. Our payments-related businesses remain strong and we continue to invest in those businesses, as demonstrated by the acquisition of the $1.6 billion retail card portfolio at the end of 2015. Although the pressures from the energy industry negatively impacted the quarter, we took appropriate measures and remain confident that we are well positioned to continue delivering industry-leading returns throughout the year." Residential mortgages partially drove the 5.8 percent over-the- year increase in average total loans; residential mortgages at U.S. Bancorp grew by 5.4 percent over the year in Q1 and by 2.3 percent over-the-quarter. "After three years of struggling to understand the DOJ's position and methodology, it is time to ask the court to intervene." —Bill Emerson, CEO, Quicken Loans

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