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loanDepot faces allegations; How Paulson bilked billions; CFPB 🤔

By September 24, 2021 No Comments

Lawsuit by former loanDepot brass makes pretty wild accusations!!!

A bombshell lawsuit filed against loanDepot, by its former operations chief, says that as the top nonbank lender prepared to go public, its founder, Anthony Hsieh, pushed workers to approve mortgages without documentation.

The allegations by Tammy Richards, loanDepot’s former chief operations officer, echo some of the abuses that fueled the mortgage meltdown in 2008, which led to extensive new industry regulations. 

Ms. Richards, who was a midlevel executive at one of the most notorious firms during the crisis, Countrywide, said in her suit that she had been forced out of her job at loanDepot for refusing to break the rules.

“I reported this to everyone I could internally, and I was retaliated against,” Ms. Richards, 56, said in an interview, with the New York Times (paywall).

The allegations in the lawsuit get fairly detailed and personal and we won’t republish that here. However, when it comes to actual mortgage lending, Richards describes a less-than-ideal operating environment.

As loanDepot’s head of operations, overseeing more than 4,000 employees, Ms. Richards managed the process of completing its loans. She said she had refused to allow loans to be finalized until all the required vetting was complete, but Mr. Hsieh saw that as unacceptably slow. 

By early November, Ms. Richards said in her lawsuit, he had stripped her of her decision-making responsibilities, and the company pressured her to accept the newly created, lower-paid position of chief mortgage officer — effectively 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 that she cited in her complaint; those loans were then deliberately excluded from the company’s standard post-closing internal audits.

LoanDepot denies the details in the lawsuit. “We intend to defend ourselves vigorously against these outlandish allegations and will respond as appropriate during the legal process,” the company said.

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Paulson finally explains how he bilked billions from the subprime crash

Speaking of echoes of the subprime crisis, John Paulson explained his famous bet against the US housing bubble in a recent episode of Finanze, a podcast hosted by Logan Lin, a 17-year-old student at a California high school. 

The billionaire investor detailed how he anticipated the housing market's collapse, shorted about $25 billion of securities, and scored a $15 billion windfall. 

His wager was immortalized in the book “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History.”

Paulson discussed shorting a slew of Wall Street banks, mortgage lenders, and credit-rating agencies during the mid-2000s housing boom. He also touched on his philanthropic pursuits and offered some advice for young people choosing a career.

“We focused on the institutions that had large quantities of subprime or poorly performing mortgages,” he tells Lin. 

“We shorted New Century, Fannie Mae, Freddie Mac, Citibank, Washington Mutual, IndyMac, Bear Stearns, Lehman Brothers, and we were 100% right.”

How did he make correct predictions? Analytics, he said.

“It wasn't a crapshoot for us. We understood the trends of the mortgage market so well that we could almost predict with a degree of precision when the market would default,” he said. 

“Even though the underlying fundamentals were deteriorating, the market pricing didn't adjust. It was an incredible opportunity to buy protection at very low cost, when it seemed obvious to us that these securities would default,” he added.

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CFPB: Wealthier whites complain about mortgages the most

The Consumer Financial Protection Bureau just released its first in-depth report analyzing complaint submission patterns by U.S. Census tract. 

As could be expected, communities with more wealth tended to complain more about credit products collateralized by their properties.

The report, “Consumer complaints throughout the credit life cycle, by demographic characteristics,” finds that the complaints from wealthier communities and communities with higher percentages of white, non-Hispanic residents were more frequently about loan origination and performing servicing, while the complaints from communities of color and lower income communities were more frequently about credit reporting, identity theft, and delinquent servicing. 

The findings are based on the nearly 1 million consumer complaints submitted to the CFPB between 2018 and 2020.

“Today’s report confirms that the experiences and concerns of communities, with consumer financial products and services, vary by race and wealth,” said CFPB Acting Director Dave Uejio. “Our consumer complaint data is a crucial tool for understanding varying consumer experiences, including across racial and economic divides.”

 The report uses a novel approach to classify complaints by matching the relevant consumers to census tract-level U.S. Census demographic data. 

Some of the report’s other findings are:

  • Complaints about loan originations increased by nearly 50% over the course of 2020, driven largely by mortgage complaints. This increase was centered in higher-income neighborhoods and neighborhoods with fewer people of color.

  • Neighborhoods with the highest share of white, non-Hispanic consumers submit complaints about loan originations at more than twice the rate of neighborhoods with the highest share of Black consumers.

  • Consumers from neighborhoods with the highest share of Black residents submit the most complaints per resident. Census tracts with the greatest share of Black residents (95% and over) have estimated complaint rates that are double the rates for tracts with the lowest share (5% and under).

  • Lower income census tracts (those at or below 40% of their area’s median income) submit around 30% more complaints per resident than census tracts at around 100% of their area’s median income.

  • Lower-income and communities of color are more likely to submit complaints about credit reporting, identity theft, and delinquent servicing, while higher-income and majority white, non-Hispanic communities are more likely to submit complaints about origination and performing servicing.

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