LoanDepot, one of the largest non-bank lenders in the mortgage industry, exploded.
Due to the historically low interest rates of last year, refinancing of residential loans reached their highest level in more than ten years. And thanks to an aggressive sales push, loanDepot has made $100 billion in loans, a company record.
But in its eagerness to grow for an initial public offering early this year, loanDepot has illegally cut and processed thousands of loans without required documents such as employment and income verifications, according to filed a lawsuit Wednesday by one of his former top managers.
The allegations made by Tammy Richards, former chief operations officer of loanDepot, reflect some of the abuses that fueled the mortgage crisis in 2008, leading to extensive new industry regulations. Ms. Richards, who was a mid-level executive at one of the most notorious companies during the crisis, said in her suit that she was forced to quit her job at loanDepot because she refused to break the rules.
“I reported this internally to everyone and I was retaliated against,” Ms Richards, 56, said in an interview.
Her lawsuit, filed in the California Superior Court in Orange County, accuses Anthony Hsieh, the chief executive of loanDepot, of leading a plan to increase sales by ignoring regulations and taking on risky loans, some of which, according to the charge, were intentionally barred from the company. standard acceptance process. The suit — which cites copies of business emails, internal messages and company documents describing the plan — said employees were offered bonuses for processing the loans quickly and without question.
In a statement, loanDepot said it took the claims in the lawsuit seriously, but an outside investigation had previously found them to be unfounded.
“We intend to vigorously defend ourselves against these outlandish allegations and will respond as necessary during the legal process,” the company said.
Located in Foothill Ranch in Orange County, LoanDepot was founded in 2009 by Mr. Hsieh, who had founded and sold two previous online loan companies. The first, LoansDirect, was bought by E-Trade in 2001; the second, HomeLoanCenter, was acquired by LendingTree in 2004.
Those deals made Mr. Hsieh rich, but loanDepot catapulted him into a new stratosphere of wealth. Mr Hsieh — by far the largest individual shareholder — was a billionaire on paper when the company went public in February. LoanDepot shares came in at $14; they’ve since dropped to about half that price, giving the company a valuation of about $2.2 billion.
The planned IPO was a motive for the company’s executives to cover up Mr Hsieh’s increasingly reckless behavior, Ms Richards said in her suit. In 2020, as the offering approached, loanDepot paid what it described in regulatory filings as “a special one-time discretionary bonus” to its leaders. Mr. Hsieh received $42.5 million and other top executives took home cash bonuses ranging from $9 million to over $12 million.
Ms Richards, who said she was demoted in November and left out of that special bonus round, resigned in March. Her lawsuit is seeking compensation for unpaid bonuses and forfeited shares estimated to have been worth at least $35 million.
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LoanDepot is at the forefront of a group of online starters using technology to speed up and simplify mortgages. Last year, it emerged nearly 300,000 — twice as many as a year earlier — and was the fourth-largest mortgage lender in dollar-lent terms, according to iEmergent, which tracks industry data.
Mr. Hsieh has long prioritized growth and regularly adds new incentives and products to his company’s offerings. “We will never be a company that is satisfied or a company that rests on our laurels,” he told analysts during an earnings call last month. Some workers have said they appreciate the intensity and potential for high paychecks, but complaints about overwhelming work pressure, high turnover and burnout are common among ex-employees.
Ms Richards’ complaint describes the company, which: she joined in 2018, because they had a ‘female-unfriendly ‘frathouse’ culture, where bullying was the order of the day and top sellers were honored at wild parties that sometimes involved drugs and prostitutes.
In 2019, a high-ranking woman on Loan Depot accused a male executive of sexually abusing her at a company party on Mr. Hsieh’s boat; Ms. Richards, who was not at the event, was asked to lead the investigation because the company’s male officials, including the head of human resources, did not want to, her suit said. (She said she learned that both employees were drunk and disagreed on whether the meeting had been consensual.)
But the company’s lending was always done by the book, Ms. Richards said — until last August, when Mr. Hsieh began complaining that loanDepot’s loan volume was lagging behind Quicken Loans’ Rocket Mortgage, the largest lender in the refinancing industry. . At a sales meeting she attended that month, Mr. Hsieh told employees to move faster and “take out loans immediately, regardless of documentation,” Ms. Richards said in her complaint.
As head of operations at loanDepot, overseeing more than 4,000 employees, Ms. Richards managed the process of completing her loans. She said she had refused to finalize loans until all required checks were completed, but Mr Hsieh found that unacceptably slow. In early November, Ms. Richards said in her lawsuit that he had stripped her of her decision-making responsibilities and that the company was pressuring her to accept the newly created, lower-paid position of chief mortgage adviser — a demotion, in effect.
Later that month, Ms. Richards said, she heard 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; those loans were then deliberately excluded from the standard post-closure internal audits.
Ms. Richards, who once worked at Countrywide Financial, one of the most infamous subprime lenders of the mortgage crisis, said loanDepot’s actions reminded her of the misdeeds she had helped untangle after Bank of America bought the bankrupt company in 2008.
“The job would put me in the midst of inappropriate activity of talking to regulators and certifying that the loans we give them are correct,” said Ms. Richards, who added that she was beginning to have panic attacks.
She soon went on unpaid medical leave; her usual salary and bonus of $1.2 million were cut. She resigned four months later.
Other lower-level workers who have recently outsourced 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 told to ignore the requirements, but each said the blazing-fast pace of the work company had led to carelessness and mistakes.
A loan officer who left last year said the company had set unreasonably high sales targets that forced employees to make low-quality loans, many of which would likely be turned down just to meet their quota. A credit processor that shut down a few months ago said it was often assigned dozens of loans in one day and that customers often received closing documents with inaccuracies. She added that Mr Hsieh had threatened – at major company meetings – to personally fire those who could not keep up.
Mr. Hsieh makes little apology for his brash management techniques. When an employee survey of loan officers found that nearly half were unhappy in their jobs, Mr. Hsieh that they should “stop whining” and resign, according to an email forwarded to HousingWire, a trade news source.
On LinkedIn, where Mr Hsieh maintains a chatty stream of posts, he once mocked the… “Top 10 Rumors” about loan Depot, including “we work too hard” and “we play too hard”. Another item on the rumor list: “Regulators are shutting us down.”