Mortgage lender cut corners in echo of 2008 crisis, ex-executive says


LoanDepot, one of the largest non-bank lenders in the mortgage industry, was booming.

Historically low interest rates last year pushed home loan refinances to their highest level in more than a decade. And thanks to an aggressive sales push, LoanDepot granted $ 100 billion in loans, a record for the company.

But in its rush to expand ahead of an initial public offering earlier this year, LoanDepot illegally cut corners and processed thousands of loans without required documents such as employment and income verifications, according to a lawsuit filed on Wednesday. by one of its former senior executives.

The allegations by Tammy Richards, former COO of LoanDepot, echo some of the abuses that fueled the mortgage collapse in 2008, which led to extensive new industry regulations. Ms Richards, who was a middle manager at one of the most notorious companies during the crisis, said in her lawsuit she was forced to quit her job at LoanDepot for refusing to break the rules.

“I reported this to everyone I could internally and suffered retaliation,” Ms. Richards, 56, said in an interview.

His lawsuit, filed in California Superior Court in Orange County, accuses Anthony Hsieh, chief executive of LoanDepot, of carrying out a scheme to increase sales by flouting regulations and taking on subprime loans, including some, according to the lawsuit, were intentionally excluded from the company. standard subscription process. The lawsuit – which cites copies of company emails, internal messages and company documents describing the plan – said employees were offered bonuses for processing loans quickly and without asking questions .

In a statement, LoanDepot said it took the claims seriously, but an outside investigation had previously found them to be without merit.

“We intend to vigorously defend ourselves against these far-fetched allegations and will respond as appropriate during the legal process,” the company said.

LoanDepot, based in Foothill Ranch in Orange County, was founded in 2009 by Mr. Hsieh, who had created and sold two previous online loan companies. The first, LoansDirect, was acquired in 2001 by E-Trade; the second, HomeLoanCenter, was acquired in 2004 by LendingTree.

These deals made Mr. Hsieh rich, but LoanDepot catapulted him into a new stratosphere of wealth. Mr. Hsieh – by far his largest individual shareholder – became a paper billionaire when the company went public in February. LoanDepot shares debuted at $ 14; they’ve since fallen to about half that price, leaving the company with a valuation of around $ 2.2 billion.

The planned initial public offering was a motive for company executives to cover up Mr Hsieh’s increasingly reckless behavior, Ms Richards said in her lawsuit. In 2020, as the offer approached, LoanDepot paid its executives what it described in regulatory documents as “a one-time and special discretionary bonus”. Mr. Hsieh received $ 42.5 million, and other senior executives have won cash bonuses ranging from $ 9 million to over $ 12 million.

Ms Richards, who said she was demoted in November and excluded from this special bonus round, resigned in March. Her lawsuit seeks compensation for unpaid premiums and forfeited shares which she says were worth at least $ 35 million.

LoanDepot is at the forefront of a group of online newbies who are using technology to speed up and simplify mortgage lending. Last year, it issued nearly 300,000 – twice as many as a year earlier – and was the country’s fourth-largest mortgage provider in dollars loaned, according to iEmergent, which tracks industry data.

Mr. Hsieh has a long history of prioritizing growth and regularly adds new incentives and products to his company’s lineup. “We will never be a happy or resting company,” he told analysts on a conference call last month. Some workers have said they appreciate the intensity and opportunities of big paychecks, but complaints of overwhelming workloads, high turnover and burnout are common among former employees.

Ms Richards ‘complaint describes the company, which she joined in 2018, as having a’ misogynistic ‘frat house’ culture, where harassment was rife and top sellers were celebrated at wild parties that sometimes involved drugs and prostitutes.

In 2019, a senior LoanDepot woman accused a male executive of sexually assaulting her at a company party on Mr. Hsieh’s boat; Ms Richards, who was not present at the event, was asked to lead the investigation because male company officials, including her head of human resources, did not want him, her lawsuit said. (She said she learned that the two employees were drunk and disagreed as to whether the meeting was consensual.)

But the company’s loans have always been done according to the rules, Ms Richards said – until August of last year, when Mr Hsieh started complaining that LoanDepot’s lending volume was lagging behind. compared to Rocket Mortgage of Quicken Loans, the industry’s largest refinance lender. At a sales meeting this month she attended, Mr Hsieh told employees to go faster and “close loans immediately, regardless of the documents,” Ms Richards said in her complaint.

As LoanDepot’s COO, overseeing over 4,000 employees, Ms. Richards managed the process of finalizing her loans. She said she refused to authorize the finalization of the loans until all the required verifications were completed, but Mr Hsieh felt that was unacceptably slow. In early November, Ms Richards said in her lawsuit he stripped her of her decision-making responsibilities, and the company pressured her to accept the newly created, lower-paid position of mortgage manager – in made a demotion.

Later that month, Ms. Richards said, she learned from other employees about an initiative called Project Alpha. Mr Hsieh personally selected 8,000 loans and told employees to process them without the required documentation, according to emails and internal spreadsheets she cited in her complaint; these loans were then deliberately excluded from the company’s standard post-closing internal audits.

Ms Richards, who previously worked at Countrywide Financial, one of the mortgage crisis’s most notorious risk lenders, said LoanDepot’s actions reminded her of the wrongdoing she helped unravel after Bank of America bought the collapsed company in 2008.

“The job was going to put me right in the middle of inappropriate activity, talking to regulators and certifying that the loans we give them are correct,” said Ms. Richards, who added that she had started to have panic attacks.

She quickly took unpaid medical leave; his usual salary and bonus of $ 1.2 million were cut. Four months later, she resigns.

Other lower-level workers who recently left LoanDepot also describe a pressure cooker culture. Several former employees, who asked not to be identified to protect their job prospects, said they were unaware of Project Alpha and were never explicitly asked to flout the demands, but each has said the company’s rapid pace of work has led to neglect and mistakes.

A loan officer who quit last year said the company set unreasonably high sales targets that forced employees to take out low-quality loans, many of which were susceptible to rejection, just to meet their expectations. quotas. A credit firm that quit a few months ago said it was often awarded dozens of loans in a single day, and clients frequently received closing documents with inaccuracies. She added that Mr Hsieh threatened – at large company meetings – to personally fire those who could not keep up.

Mr. Hsieh apologizes little for his brash management techniques. When an employee survey of loan officers found nearly half of them were unhappy with their jobs, Mr Hsieh told them to “stop whining” and quit, according to an email. which was forwarded to HousingWire, a source of business information.

On LinkedIn, where Mr. Hsieh maintains a chatty flow of posts, he once mocked the “Top 10 Rumors” on LoanDepot, including “we’re working too hard” and “we’re playing too hard.” Another item on the list of rumors: “The regulators are arresting us. “


About Christopher Easley

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