A former executive at loanDepot dropped a bombshell on the mortgage industry late Wednesday, alleging in a lawsuit that the California-based nonbank lender, in a ploy to drum up money during the refi boom and in preparation for its initial public offering, closed thousands of loans without proper documentation.
The suit, filed by Tammy Richards, former chief operations officer, accuses loanDepot’s CEO, Anthony Hsieh, of ordering the sales team to “trust [their] borrowers” and close loans, disregarding proper underwriting etiquette.
Richards claims that this demand was announced during a production meeting in August 2020, where Hsieh allegedly screamed, “I am Mello Clear, and we must immediately close loans regardless of documentation.” Top executives at loanDepot allegedly didn’t bat an eye at Hsieh’s tactics.
After two months, the same point was made to Ms. Richards, with Hseih allegedly announcing that the sales team needs to “close all loans…close without credit reports…close without documentation…close all loans.”
Closing loans without documentation violates federal laws, including the Dodd-Frank Act, which requires mortgage originators to follow minimum standards for all mortgage products. The landmark legislation also prohibits lenders from making loans unless they reasonably determine that the borrower can repay based on papers that prove credit history, and current and expected income.
Officials from the Consumer Financial Protection Bureau, the Federal Housing Finance Agency and Fannie Mae and Freddie Mac did not immediately respond to requests for comment by HousingWire.
Richards’ suit, filed in California Superior Court in Orange County, claims that her refusal to comply with Hsieh’s demands, specifically with closing loans without credit reports, resulted in her demotion in November.
Richards claims that after her demotion, executives at loanDepot hatched a strategy dubbed “Project Alpha” in which Hsieh allegedly personally identified over 8,000 loans that were closed without proper documentation. Two-hundred processors were put in charge of closing these loans in exchange for extra bonuses at the end of the year.
Richards accuses the CEO, who founded loanDepot in 2009, of directing the company’s Chief Credit Officer, Brian Rugg, to refrain from auditing the 8,000 loans.
Richards, who at one point oversaw 4,000 employees, said she was eventually forced out of her job for refusing to break the rules. After a stint on medical leave, she resigned in March 2021.
The lawsuit filed by Richards also includes multiple allegations that male company executives created and enforced a “misogynistic frat house culture” that routinely led to women being harassed and demeaned.
The nonbank mortgage lender disputed the claims made by Richards, who worked in senior roles at Wells Fargo, Bank of America, Caliber Home Loans and Countrywide Financial (one of the bad actors in the subprime loan crisis) before joining loanDepot.
“LoanDepot is committed to operating at all times according to ethical, responsible and compliant business practices,” a statement from the company read.
“The claims in the lawsuit, which we take very seriously, were previously thoroughly investigated by independent third parties and found to be without merit,” loanDepot said, without providing further information about who conducted these investigations and when they occurred. “We intend to defend ourselves vigorously against these outlandish allegations…”
LoanDepot, the nation’s second-largest nonbank retail mortgage lender, went public in February, selling 3.85 million shares at $14 and raising $54 million. The company filed reports that showed its revenues increased from $1.3 billion in 2019 to $4.3 billion in 2020, according to Securities and Exchange Commission filings. The company originated about $100.7 billion in loans in 2020.
Hsieh has been the biggest beneficiary of the IPO – as the largest shareholder, last year he took advantage of a one-time discretionary performance bonus of $42.5 million.
In recent months, the nonbank lender moved to appoint new faces to their board of directors, including Pamela Hughes Patenaude, a former deputy secretary of the U.S. Department of Housing and Urban Development and Mike Linton, marketing expert who currently serves as chief revenue officer at genomics firm Ancestry,
The company was trading at $6.98 late Thursday afternoon, with a valuation of $2.1 billion. It recently appointed former Department of Housing and Urban Development Deputy Secretary Pamela Patenaude to the board.
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