A former frame of loan deposit bombed the mortgage industry on Wednesday night, alleging in a trial that the California-based non-bank lender, in a ploy to raise money during the refi boom and in preparation for its initial public offering, closed thousands of loans without proper documentation.
The lawsuit, filed by Tammy Richards, former COO, accuses LoanDepot CEO Anthony Hsieh of ordering the sales team to “trust [their] borrowers’ and close loans, disregarding the proper underwriting etiquette.
Richards claims that this request was announced at a production meeting in August 2020, where Hsieh reportedly shouted, “I’m Mello Clear, and we need to close the loans immediately regardless of the documentation.” Senior LoanDepot executives would not have looked at Hsieh’s tactics.
After two months, the same remark was made to Ms. Richards, with Hsieh allegedly announcing that the sales team was to â€œclose all loansâ€¦ close without credit reportâ€¦ close without documentationâ€¦ close all loansâ€.
Closing loans without documentation violates federal laws, including the Dodd-Frank Law, which requires mortgage originators to meet minimum standards for all mortgage products. Historical legislation also prohibits lenders from making loans unless they reasonably determine that the borrower can repay based on documentation proving current and expected credit history and income.
Officials of the Consumer Financial Protection Bureau, the Federal Housing Finance Agency and Fannie Mae and Freddie mac did not immediately respond to HousingWire’s requests for comment.
Richards’ lawsuit, filed in California Superior Court in Orange County, claims his refusal to comply with Hsieh’s demands, particularly regarding the closing of non-credit report loans, resulted in his demotion in November.
Richards claims that after his demotion, LoanDepot executives devised a strategy dubbed â€œProject Alphaâ€ in which Hsieh personally identified more than 8,000 loans that were closed without proper documentation. Two hundred processors were tasked with closing these loans in exchange for additional bonuses at the end of the year, according to the lawsuit.
Richards accuses the CEO, who founded LoanDepot in 2009, of ordering the company’s chief credit officer, Brian Rugg, to refrain from auditing the 8,000 loans.
Richards, who at one point supervised 4,000 employees, said she was ultimately forced to quit her job for refusing to break the rules. After going on sick leave, she resigned in March 2021.
Richards’ lawsuit also includes multiple allegations that male business executives created and enforced a “misogynistic fellowship house culture” that has consistently led to harassment and demeaning of women.
The non-bank mortgage lender took issue with the claims of Richards, who held senior positions at Wells fargo, Bank of America, Caliber home loans and Nationwide financial (one of the bad actors of the subprime crisis) before joining LoanDepot.
â€œLoanDepot is committed to operating at all times in accordance with ethical, responsible and compliant business practices,â€ a company statement read.
“The claims in the lawsuit, which we take very seriously, have already been thoroughly investigated by independent third parties and have been found to be without merit,” LoanDepot said, without providing further information on who has conducted these investigations and when they took place. “We intend to vigorously defend ourselves against these far-fetched allegations …”
LoanDepot, the country’s second-largest non-bank retail mortgage lender, went public in February, selling 3.85 million shares at $ 14 and raising $ 54 million. The company has filed reports showing that its revenues have grown from $ 1.3 billion in 2019 to $ 4.3 billion in 2020, according to Security and Trade Commission deposits. The company made approximately $ 100.7 billion in loans in 2020.
Hsieh was the biggest beneficiary of the IPO – as the largest shareholder he enjoyed a one-time discretionary performance bonus of $ 42.5 million last year.
In recent months, the non-bank lender has decided to appoint new faces to its board, including Pamela Hughes Patenaude, former deputy secretary of the US Department of Housing and Urban Development and Mike Linton, a marketing expert who currently serves as chief revenue officer for a genomics company Ancestry,
The company was trading at $ 6.98 late Thursday afternoon, with a valuation of $ 2.1 billion. He recently named the former Department of Housing and Urban Development Assistant Secretary Pamela Patenaude on the Board of Directors.