Quicken Loans is partnering with Freddie Mac to boost business among first-time and middle-income borrowers as it battles allegations over its past underwriting practices on Federal Housing Administration-backed mortgages.

The collaboration may involve modification and expansion of an existing Freddie Mac program that allows eligible borrowers to finance homes with downpayments of as little as 3 percent, the companies said Monday in a statement released at a Mortgage Bankers Association conference in San Diego.

Quicken's coupling with U.S.-controlled Freddie Mac comes after the lender sued the federal government in April, claiming the Departments of Justice and Housing and Urban Development "cherry-picked" from its FHA-backed mortgages in trying to force an admission of poor underwriting. The U.S. sued Quicken a week later, accusing the firm of submitting insurance claims for hundreds of improperly underwritten FHA-insured loans over four years. Both suits are pending.

The legal dispute followed a series of settlements that cost lenders about $138.5 billion from 2010 to 2014, according to the Mortgage Bankers Association. The rise of Detroit-based Quicken has been fueled by the retreat of big banks from lending to younger and less-wealthy borrowers in the face of government efforts to recoup losses from soured loans.

"A number of large lenders have reduced their involvement in the FHA single family program, frequently in reaction to False Claims Acts lawsuits brought against them by the Department of Justice," Glen Corso, executive director of Consumer Mortgage Lenders of America, said in a statement. "Mid- size and small community-based lenders, both banks and nonbanks, have stepped up to fill the gap."

The FHA, which provides mortgage insurance for first-time and lower-income borrowers, has played an expanding role in the housing market since subprime lending dried up after the 2008 financial crisis. Big lenders including JPMorgan Chase & Co. have been pulling away from working with the agency amid uncertainty over which underwriting flaws can trigger legal action.

"Unless FHA deploys a more nuanced error classification system or provides some kind of materiality standard in its certification, it's likely that more lenders will pull out of FHA either in part or entirely," said Julia Gordon, executive vice president of the National Community Stabilization Trust.

Under its agreement with Freddie Mac, Quicken will offer financing for loans with down-payments as small as 3 percent, lower than the 3.5 percent threshold for FHA loans.

"Homebuyer demographics will continue to significantly shift in upcoming years, and mortgage programs must evolve to serve the needs of groups like first-time buyers and minority groups," Quicken Loans Chief Executive Officer Bill Emerson said in a statement. He is scheduled to speak at the MBA conference on Monday.

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