"Except for a handful of banks that just keep a handful of their loans in portfolio, on their balance sheet, every other loan that's originated in the United States — whether from a bank, mortgage company, mortgage broker — is sold into the secondary market," he says. "That was true then [and it's] true now."
But, while Quicken may have been liable, as Gilbert contends, the buyback period was limited to a finite time span, typically up to one year, Steve Dibert, founder of mortgage fraud investigation company MFI-Miami, later tells me. After that, the repercussions of potentially shoddy loans were left to the purchaser, he says. And if an auditor ever reviewed the package of loans, they reviewed a fraction of a percent, Dibert says.
Back inside Gilbert's office: Even so, he says, the buyback of loans due to breached representations and warranties is a commonality in the lending industry He takes pains to stress that this is unrelated to problems that led to the mortgage industry's implosion of 2007. It is common.
When Quicken sells a loan into the secondary market, Gilbert says there are two instances where the company must represent and offer warranties on what it has sold. First, he says, there's borrower fraud.
That is, "the borrower commits fraud on that loan and we just didn't catch it for fraud, and then we sell that loan, and then later on it defaults and [the purchaser catches] fraud in the loan ... they can push that loan back to us," he says. "Some borrowers are pretty damn good at fraud."
Then, there's internal fraud, "which was almost never the case," says Gilbert. "There may have been a handful of loans."
He adds: "This is something that has gone on for 25-30 years," he says of repurchasing mortgages. "[T]here's X amount of loans ... [and] a small percentage goes bad, which, when you're doing a large volume, can be a lot of loans, the first thing [the purchaser wants] to do is ask, 'Can we push the loan back?'"
What generally happens then, Gilbert says, is a negotiation.
"These settlements happen all the time," he said, adding, "This [was] just a routine settlement. We probably settled more than $6.5 million in loans this month with investors." Basically, he's saying yeah, this is just part of the game.
On the surface, saying Quicken never messed with subprime lending is, at the very least, a confusing, definitive statement to make. A review of published reports during the height of the housing boom show a narrative that bounces back and forth from reiterating Gilbert's line that Quicken didn't dabble in risky loans to a contradictory picture.
In March 2007, for instance, Quicken CEO Bill Emerson spoke on CNN about the subprime mortgage industry, and said that 2 percent of the company's total lending business was in subprime loans.
Quicken's chief economist, Bob Walters later echoed the same remark to
The Detroit News.
And yet, later that year, The Detroit News reported that, in 2006, Quicken sold the third-highest amount of subprime loans in metro Detroit. That accounted for just over 20 percent of its business in the metro Detroit area that year. So while 2 percent of the company's overall business was subprime, it made up over 20 percent of its business in metro Detroit.
In June 2008, News financial columnist Brian O'Connor wrote that a pool of loans at the center of a legal dispute between Quicken and Wells Fargo included "subprime adjustable-rate mortgages to home equity lines of credit, [which] were sliced and diced so many ways, and passed around to so many buyers, that everyone claimed risk had been diversified right out of the system."
As Gilbert puts it, though, subprime lending comes down to a matter of how the word is defined. There really is no objective definition, he says. What it was in 2006 and what it is today are entirely different.
He stresses this point. It's the one thing that "drives him crazy" — reports that question whether or not Quicken sold subprime. Patiently, I hear him out, meanwhile wondering why years-old apparent inconsistencies even remain an issue for him.
"There's no set definition of what is subprime," Gilbert says. "The only thing that really is defined is conforming, Fannie, Freddie, FHA loans," he says, adding, "Everything else ... nonconforming, subprime, alternative lending, jumbo [loans] ... nobody's got a real definition."
Gilbert says that judging a loan applicant can be broken down into four categories: credit score, the home's appraised value, employment history, and assets.
"That's it," he says, "... the first two is what drives it. And if you got loans that are high LTV (loan-to-value) and bad credit, you're going to have problems.
"That, to me, is subprime."
Gilbert also highlights the company's ranking by the Federal Housing Administration as having the third-lowest delinquency rating among lenders. Called the "compare ratio," it compares the number of delinquencies to the FHA's national average.
The conversation between us continues at a steady pace, however, and I never directly clarify this point with Gilbert. So, in a follow up email, citing CEO Emerson's 2007 remarks on CNN, I ask if the company ever sold subprime loans, and how much of it constituted the company's total lending.
Quicken spokesperson Aaron Emerson says the vast majority of the company's business over the years has been and is "straight vanilla, Fannie Mae, Freddie Mac, and FHA home loans."
"[I]f you are using the word 'subprime' as is most commonly used in today's world, which refers to toxic loans with 12%, 13%, 14% or even higher interest rates that was responsible for the collapse of the US mortgage market and even the US economy: NO, QUICKEN LOANS NEVER PARTICIPATED NOR ORIGINATED THESE TYPES OF LOANS," he writes me in an email.
He adds: "As far as the specific stories you cite ... the paragraphs above should give you full and satisfactory explanation, and if not then the reports were flat-out wrong."
Got that? This, in response to a question as to why the company's CEO himself told a national news outlet that a fraction of his company's business in the mid-2000s was in subprime loans. In other words, PR Emerson strongly denies what CEO Emerson is on the record admitting.
What about this?
OK, so maybe they skirted selling an abundant amount of subprime loans. But what about this: Why is Deutsche Bank National Trust Co. currently suing Quicken over loans it originated, accusing the company of misrepresentions, omissions, or commission of "fraud in the loan origination process."
"The reviews revealed that many of the mortgage loans did not possess the represented characteristics and safeguards at the time of the securitization," the complaint filed by Deutsche Bank says. Essentially, securitization is the process of combining a pool of contractual debt, such as residential mortgages, and selling that pool to investors with mortgage payments as security.
"Instead, therefore, of receiving a pool of loans having the characteristics and quality represented by Quicken, the trust received a far riskier and less stable loan pool," the complaint continues.
Deutsche cites an instance where borrowers misrepresented their income to Quicken, whom the complaint says "failed to test the reasonableness of such income."
According to the complaint, one borrower stated he was a restaurant manager, with a monthly income of $10,000 on his application for a loan. As it turns out, the borrower's income tax statements showed he earned only $4,621 per month.
Records MT reviewed show the $171,000 loan in question for a home in Detroit was a five-year, hybrid adjustable-rate mortgage (ARM) rider, which initially allowed the borrower to make payments that didn't even cover the monthly 6.875 percent interest costs. It bears mentioning that, at any given time, the borrower was afforded the ability to pay a larger amount to pare down the principal.
After five years, the interest rate could then begin to change, records show, with a maximum interest rate of 11.875 percent. At that point, the borrower could have begun to make interest-only payments.
The borrower never reached that point. The Detroit home in question was eventually lost to foreclosure in 2010, records show. Attempts to reach the homeowner were unsuccessful.
It has also been established that Quicken sold so-called "stated-income loans," which eventually earned the pejorative title of "liar loans," as a borrower would only be required to state how much they earned without any supporting documentation. The company says it would test the "reasonableness" of an applicant's figure by comparing it to an independent salary tool like Salary.com. And it would verbally verify the applicant's employment with his or her stated employer.