Facing the possible pullout of its mortgage partner, Countrywide Credit Industries, Quicken Loans is looking for a rule change that would let the Intuit Inc. subsidiary extend a nationwide FHA-lending program it started just two months ago.

Viewed one way, Intuit's situation is a case of Internet business racing ahead of public policy. It also points to the battle traditional financial firms are waging against on-line upstarts.

At issue is a Housing and Urban Development rule that requires FHA lenders to have a physical presence where they offer loans. HUD dropped a requirement for face-to-face meetings two years ago, and a lender can now comply by opening new branches, operating in areas that HUD calls underserved, or by a partnership with an FHA-approved lender as agent.

On Dec. 8, Quicken Loans - then called Rock Financial Corp. - began offering FHA loans in all 50 states from a Detroit-based call center. Intuit acquired Rock that same day.

The company trumpeted the FHA initiative Jan. 20 and claimed to be "the first on-line mortgage company to receive the government's approval to originate, close, and fund FHA loans on a national basis from one centralized location."

Though the statement was accurate, it did not provide a complete picture.

HUD has allowed Quicken to make the loans because of a relationship, which was not mentioned in the news release, whereby Countrywide Home Loans acts as Quicken's authorizing agent. Rock Financial formed this relationship before Intuit bought it.

According to HUD, Quicken's program does not reflect "a new policy or a new procedure, but instead a new way of using an existing" policy.

Dan Majewski, project manager for Quicken Loans, said the deal with Countrywide is an interim solution until HUD changes its policy, as he predicts it will do early this year. Mr. Majewski explained that Countrywide "blesses our credit decisions, but that's it."

Though one Quicken spokesman said the Countrywide relationship expires in two months, Mr. Majewski said Quicken's agreement with Countrywide has no termination date and is not a contract.

A spokesman for Countrywide said it was on Quicken Mortgage's aggregate Web site as a lender but reconsidered when Intuit, a potential competitor, bought Rock Financial. "We moved to terminate the relationship when the Rock deal went through," he said. He said Countrywide continues to buy closed loans from most of its retail competitors, including Quicken Loans.

A spokesman for HUD said "it would not be appropriate at this time" to discuss a change the department may make. But as more mortgage lending moves to the Internet, HUD's consideration of the issue seems inevitable.

Jaime Punishill, senior analyst for Forrester Research, said that governments remain behind the times where technology is concerned, and that outmoded laws are blocking consumers' access to the best rates. "In an effort to protect consumers, they are actually harming them," he said. State and local governments "are absolutely clueless" about the Internet, he said. "They can't even spell Internet, let alone regulate it."

FHA loans represent a significant segment of the mortgage market. In the government's fiscal 1999, which ended in September, 1.28 million FHA loans, for a total of $123.9 billion, were originated. Mortgage industry originations in calendar 1999 totaled $1.287 trillion, according to the Mortgage Bankers Association of America.

Quicken said it is optimistic about FHA lending. Mr. Majewski said that Quicken Loans conducts 90% of its lending via the Internet, and that on-line applications for FHA loans have tripled since Dec. 8.

"The sky's the limit," he said.

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