Quicken Loans Arena, home of the Cleveland Cavaliers, is one of the key marketing tie-ins for Quicken Loans founder Dan Gilbert. seng1011
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Quicken Loans and its billionaire founder, Dan Gilbert, have been on a hot streak.

Quicken Loans founder Dan Gilbert (Mark Duncan/AP)

As competitors have struggled in the wake of the financial crisis, Quicken has become one of the nation’s largest mortgage lenders, using two of Gilbert’s other ventures – the NBA’s Cleveland Cavaliers and their home base, Quicken Loans Arena – as marketing tie-ins.

Quicken says it has survived and thrived because it’s one of the good guys in the mortgage business – a lender that stayed away from subprime loans and dicey practices. Surveys rank Quicken as the No. 1 home lender for customer satisfaction and as one of America’s best places to work. Quicken’s success, Gilbert says, is “driven by our special culture . . . Our people bring their ‘A’ game with them to work every day.”

Not everyone is cheering Quicken’s game plan.

Lawsuits from borrowers and ex-employees claim Quicken’s day-to-day tactics are at odds with its squeaky clean image. 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.

Last February, a state court judge in West Virginia found that Detroit-based Quicken had committed fraud against a homeowner by misleading her about the details of her loan, charging excessive fees, and using an appraisal that exaggerated the value of her home by nearly 300 percent. The judge called the lender’s conduct “unconscionable.”

Trial in Detroit Begins Tuesday

Quicken Loans founder Dan Gilbert. Credit: Mark Duncan/Associated PressA 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.

Managers urged 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,” Michael Pikora, a former loan salesman, said in a sworn statement in a lawsuit involving hundreds of ex-employees who contend Quicken forced them to work unpaid overtime.

The case, one of several overtime pay lawsuits against the lender, is set to go to trial in federal court in Detroit next Tuesday. “The worse the client’s situation was, and the lower their credit, the easier it was to charge excessively high rates,” Pikora said.

The allegations against Quicken show that efforts to assign blame for the practices that helped crash the mortgage market are far from complete. The claims against Quicken aren’t as widespread as they were against some of the nation’s most tarnished home lenders, such as Ameriquest Mortgage and Countrywide Financial. But they do shine a light on the practices and perceptions of a brand-name lender that escaped the mortgage meltdown without major problems or negative publicity.

“There were others that did more, but Quicken did their share, and they hurt a lot of people,” Jim Bordas, an attorney who sued Quicken in the West Virginia fraud case, contends.

Quicken denies it mistreats workers or customers.

In the West Virginia case, the company said there was no fraud and that its mortgage lending practices followed industry standards. As for the lawsuits from former employees seeking overtime pay, Quicken describes them as the product of “parasitic” plaintiffs’ attorneys who specialize in filing “meritless claims in an effort to coerce settlements from job-producing companies.”

A spokeswoman for the company told the Center for Public Integrity that every mortgage lender in America “has been beset” by claims of misconduct, and most “are quite frivolous in nature. In fact, it’s our belief that Quicken Loans has received a disproportionately low number of claims in relation to our volume, meaning that we wrote better loans than our competitors.”

For his part, Gilbert, the chairman of Quicken Loans, says that his loan consultants are trained professionals. They work closely with borrowers “and kind of go deep into their background and analytically recommend things to them. Almost like an artist. They have to paint the picture of their financial condition” to come up with the best loan for a customer’s circumstances, he testified in 2005 for the overtime pay case.

The Spirit of Quicken

Gilbert has also testified that he’s too busy these days with his various endeavors to be much involved in the daily operations of the lender that made him one of America’s richest men.

His corporate empire now boasts more than 30 companies, including a biotech company that’s working on treatments for cancer and blood disorders and a venture that’s developing casinos in Cleveland and Cincinnati. Last summer, Gilbert made headlines when he blasted his best-known employee – basketball superstar LeBron James – for “cowardly betrayal” after James announced he was leaving the Cavaliers and signing with the Miami Heat.

Even if Gilbert’s hands-on role at Quicken Loans has been reduced, it’s impossible to separate the company from its founder.

Gilbert began his career as an entrepreneur early, delivering pizzas out of his mother’s kitchen when he was 12. He founded a one-man mortgage company in 1985 as a 22-year-old law student. His company, Rock Financial, grew so big that in 1999 Intuit Inc., the maker of Quicken tax software, purchased the company, renaming it Quicken Loans. After leading a small group of investors in buying back the mortgage operations from Intuit in 2002, Gilbert kept the Quicken Loans brand name.

Quicken Loans, which makes loans from centralized internet lending centers in Michigan, Ohio, and Arizona, is now the nation’s largest online mortgage lender, the third largest FHA lender, and the fifth largest retail mortgage lender. It has nearly 4,000 employees, and closed more than $25 billion in home loans in 2009.

Over the years, Gilbert has put his imprint on the company’s culture, using his skills as a motivational speaker to infuse it with his entrepreneurial spirit.

Employees are expected to embrace Gilbert’s “isms,” sayings that illuminate his approach to business and life. Example: “The inches we need are everywhere around us” (meaning little things add up). Another example: “We eat our own dog food” (employees should be the company’s biggest fans).

Fortune has named Quicken Loans to its list of “100 Best Companies To Work For” eight years in a row, ranking the company as high as No. 2.

“Our people enjoy working here because we’ve created a unique culture that is based on trust and empowerment,” Gilbert said after Quicken won the award in 2007. “. . . You have to empower people to take action, which means trusting them to make the right decisions.”

Ex-Employees Say They Were Told to Follow Sales Scripts

Some former employees recall a work environment that differs from the one described by the company. In sworn statements in the overtime pay lawsuit set to start trial next week, 15 former loan consultants claim they worked under tightly controlled conditions that discouraged independent judgment.

They sat row by row in a sea of cubicles, they say, working 50- and 60-hour weeks, plugged into headsets and directed by “LOLA,” a computer program that told them which prospective customers to call. Managers stood on “The Bridge” (a nod to TV’s Star Trek), a control center that allowed them to monitor minute-by-minute what employees were doing, even, the former employees claim, listening in on calls and rebuking workers if they tried to take a coffee break or failed to follow the lender’s carefully scripted sales pitch.

One former salesman said it was as if Quicken executives were “training monkeys to sell their products to customers.” A former saleswoman described the environment as “very hostile, with management using intimidation tactics, public humiliation, and profanity when dealing with the sales team members. . . . We were berated, screamed at, and had our jobs threatened to increase our sales.”

The company denies that it requires salespeople to follow scripts when pitching loans to customers.

In an interview with the Detroit Free Press in 2005, Gilbert called the overtime pay litigation “legal extortion.”

“You’ve got disgruntled people who simply could not make it,” he said. “It is an insult to every hardworking person in the country. It gives the signal to people that instead of working hard, let’s exploit the system to get ahead.”

Pay Dispute Shines Light on Lending Tactics

The 15 ex-employees who have given sworn statements worked for Quicken mostly during 2004-2007, at the height of the mortgage boom.

A Minneapolis law firm has filed four overtime-related lawsuits involving hundreds of ex-employees. The first one set to go to trial involves employees who worked for Quicken in the earliest period covered by the cases. The plaintiffs’ attorneys won’t start putting evidence on the record in the cases involving more recent employees until the older case gets its day in court.

A spokeswoman said Quicken’s loan consultants enjoy “a guaranteed salary and a generous compensation plan.” She said the company relied on guidance from the U.S. Department of Labor in determining that they don’t qualify for overtime pay. Because the employees provide expert financial advice to borrowers in much the same way that stock brokers advise investors, the company has said, they are salaried and commissioned workers who are exempt from overtime laws.

To undercut this line of reasoning, the ex-employees’ attorneys have argued that the company’s loan consultants aren’t trained to provide advice, but rather to manipulate and mislead.

In court papers, some former employees say Quicken targeted vulnerable borrowers for deals that they didn’t want or need.

Nicole Abate, a loan consultant for Quicken in 2004 and 2005, said managers told her to push adjustable rate mortgages, known as ARMs in industry parlance. She recalled selling a loan to a customer who had cancer and needed cash to pay medical bills: “I could have offered him a home equity line of credit to pay these bills but, instead, I sold him an interest-only ARM that re-financed his entire mortgage. This was not the best Quicken loan product for him, but this was the one that made the company the most money.”

One way that Quicken hustled borrowers, several former employees said, was a sales stratagem known as “bruising.” As one former employee described the technique, the goal was to “find some bad piece of information on their credit report and use it against them, even things as insignificant as a late credit card payment from several years ago. Quicken’s theory behind this was that if the customers can be scared into thinking that they cannot get a loan, then they will be more likely to do business with Quicken.”

Several former workers said the company also trained them to hide many details of the company’s loan packages from borrowers.

According to papers filed by the ex-employees’ attorneys, the stream of emails and memos that management sent to salespeople included this admonition:

We must use Controlled Release of Information. This consists of giving only small nuggets of information if the client is PUSHING for answers.. . . The controlled release of information should be used when the client asks specific questions.

The company did not answer questions about the ex-employees’ accounts of questionable sales tactics.

The company notes, though, that a survey by J.D. Power and Associates recently ranked Quicken No. 1 in “customer satisfaction” among all home loan lenders in America. The survey gave Quicken the highest scores for the quality and convenience of the mortgage application process, the ease and speed of loan closings, and keeping clients updated throughout the whole process.

A Loan Designed for Failure?

In the face of all the scorn directed at the mortgage industry, Quicken officials have positioned their company as an alternative to the irresponsible operators who drove the spectacular growth – and spectacular fall – of the home-loan market. Its founder accepts frequent invitations to share his insights at Harvard Business School, on CNBC, and in other high-profile venues.

The company distances itself from many of its counterparts by insisting that it never peddled the brand of risky loans that helped create the mortgage meltdown. “We never did these kinds of loans that really started this mess, the subprime loans,” Gilbert told The Cleveland Plain Dealer. “We just never got into that business.”

Borrower lawsuits and statements from ex-employees, however, indicate that Quicken sold some classes of risky loans during the mortgage boom.

These included “interest-only” loans and “negative amortization” loans, which have been criticized by consumer advocates because they provided the illusion of low initial payments but were dangerous in the long run because they didn’t pay down borrowers’ mortgage debt. In the case of negative amortization loans, borrowers’ debt grows even as they make on-time payments.

In the West Virginia fraud case decided last year, the judge found that Quicken had landed 45-year-old Lourie Jefferson, a licensed practical nurse, into a complex mortgage product that would have required her to come up with a $107,000 “balloon payment” at the end of 30 years to finish paying off a loan of just under $145,000.

The Ohio County, W.Va., judge also found that Quicken used a “misleading and distorted” appraisal that puffed up the value of Jefferson’s home, which was worth less than $50,000, to $181,700. Quicken “ignored obvious flaws” in the appraisal report, the judge said.

During the trial, an attorney for the company argued there was no evidence that Quicken colluded with the appraiser or “did anything usual or anything inconsistent with industry practice.” In a court filing in September relating to the question of punitive damages, the company described the problems with the loan as an “isolated incident” created by “mere excess of zeal by a poorly supervised, low level, former employee.”

At least seven other recent lawsuits – five more in West Virginia and two in Michigan – have accused the company of using bogus appraisals to approve loans.

The company didn’t answer questions from the Center for Public Integrity about its appraisal process.

Claims That Borrowers’ Income Exaggerated

Documents in the ex-employees’ overtime lawsuit also include claims that Quicken exaggerated borrowers’ finances on “stated-income” loans, which didn’t require documentation of borrowers’ earnings.

In her statement, Abate said her sales director told her “to simply pick an income level that would be approved by underwriting rather than use the customers’ actual income.” Pikora said he sometimes boosted a loan applicants’ income fourfold on paper, raising a would-be borrower’s salary from, say, $30,000, to $120,000.

Graham and Janet Higton, longtime residents of Paradise Valley, Ariz., claim in a lawsuit in federal court in Arizona that a Quicken loan agent inflated their income on their loan application by more than $8,000 a month.

The company counters that the couple approved the income figure. In court papers, Quicken describes some of the couple’s claims as “sheer nonsense” and says that the Higtons are attempting to “manipulate the system.”

The Higtons also claim that the company steered them into a negative-amortization loan that was “intentionally designed for failure” – it was structured so they would end up in default even if they made all the payments on time, the suit claims.

The Higtons told the Center that they had wanted to refinance their home so they could renovate and remodel and ensure it would be a place where they could live out their retirement and spend time with their grandchildren. “We thought we were the doing the right thing and we just fell into a disastrous trap,” said Janet Higton, who is 63 and works as an independent travel agent.

Graham Higton, 68, an Air Force veteran and retired aerospace engineer, said he can’t sleep at night. He worries about keeping up with the loan when the payments start to click upward.

“I even sent a letter to the White House – I appealed to the president for help,” he said. “We’re not looking for a handout. We’re looking for a helping hand. We’ve been in this home for 35 years. We want to save it.”

Michael Hudson is a staff writer at the Center for Public Integrity and author of THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis.

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