Hello, LOs!
LoanDepot, which went public early this year, is facing allegations that its leadership fostered a "misogynistic, frat-house culture" and cut corners on loans in an attempt to keep up with competitors ahead of its IPO.
According to ex-loanDepot COO Tammy Richards' lawsuit, beginning in late August 2020 loanDepot founder and CEO Tony Hsieh began pushing some 200 loan processors to close out loans without federally-mandated documentation, in what she called a "wide scale fraud for profit scheme." She alleged that in exchange for closing those loans by November 2020, processors would get bonuses.
Hsieh dubbed the strategy "Project Alpha," per the lawsuit, and allegedly hand-picked 8,000 loans to go through the streamlined underwriting process. Richards also said Hsieh told the company's chief compliance officer, Brain Rugg, to leave off auditing those loans.
If those allegations are true, it raises some ugly questions. If the loans were improperly underwritten, yet they passed through the government-sponsored enterprise automated underwriting systems, then, at least from a regulatory standpoint, the issue could be moot.
Kris Kully, a partner at Mayer Brown, said that in general, if loans were eligible for purchase by Fannie Mae or Freddie Mac, their qualified mortgage (QM) status would be assured, as long as the loans complied with GSE verification standards.
But the Consumer Financial Protection Bureau has said that as long as a loan makes it through the automated underwriting system and gets an "approve/eligible" or "accept and eligible to purchase" response, it is sufficient as evidence of compliance.
"Accordingly, if a loan received such an AUS recommendation, the loan would (and would still) constitute a QM," Kully said.
Fannie and Freddie could also have been in the dark. In her lawsuit, Richards said that if the company closed those loans, they would need to certify to investors like Fannie Mae and Freddie Mac that the loans were issued in full compliance with the law. That would amount to a false statement, Richards alleged.
In response, loanDepot has called the allegations "outlandish." LoanDepot has also said they have already independently investigated the claims in the lawsuit, although it declined to provide specifics on which outside firms performed the investigation and when it took place.
The allegations are also troubling from a business strategy standpoint. If the company was cutting corners in order to gain refi market share, that would not help much as refinances taper off and purchase mortgages become crucial.
Know more? Please send an anonymous email to gkromrei@housingwire.com.
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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