After an origination team departed loanDepot in April of this year, loanDepot slammed the seven ex-employees and their new employer, CrossCountry Mortgage, with a lawsuit alleging they “hatched and implemented a scheme to loot loanDepot’s business.”
The Orange County, California-based retail lender, led by CEO Anthony Hsieh, in a lawsuit filed in San Diego Superior Court in June, alleged that the seven employees — the Meredith-Rogers team¸— stole client lists and funneled business away from loanDepot to one of its rivals, CrossCountry Mortgage.
In its May lawsuit, loanDepot alleged that after the “mass exodus” of the employees, an internal investigation revealed a “coordinated, premeditated and illicit plan” to lure its employees away, and “systematically begin the transfer of an entire existing pipeline of loans originated at loanDepot to CrossCountry Mortgage.”
LoanDepot sought a jury trial, a temporary restraining order, a preliminary injunction, compensatory, punitive, economic and consequential damages, and royalty for alleged misappropriation of trade secrets.
The court denied loanDepot’s request for the restraining order. Instead, it required the lender to conference with its ex-employees and reach an agreement for a preliminary injunction.
In August, loanDepot and the defendants agreed to engage a third-party computer forensic expert, ArcherHall, to investigate whether the loan officers made off with client lists and improperly used intellectual property. As part of the agreement, the seven ex-employees were required to hand over their personal communications, including personal email account information, web-browsing history, their computers and cell phones.
After loanDepot sued, the same ex-employees filed a separate California labor claim, alleging that loanDepot violated what’s known as Regulation Z, a provision in Dodd-Frank that regulates compensation paid to loan originators.
“These former employees only asserted these claims after we filed a lawsuit against them for, among other things, violations of their employment agreements,” a loanDepot spokesperson told HousingWire. “We successfully obtained a preliminary injunction from the court preventing these former employees from using proprietary confidential information taken from loanDepot.”
Michael Stowers, a branch manager at loanDepot’s La Mesa retail branch and top-producing loan officer, alleged that loanDepot has retaliated because he raised concerns internally about changes to the commission structure. He claimed those changes forced loan officers to choose between offering competitively priced loans and making a commission.
“I believe loanDepot is unfairly targeting me, my team, and my new employer, because I did not go along with this activity, which I believe is illegal and unethical,” Stowers said in a June court filing.
The ex-employees’ attorney, Steven Coopersmith, managing attorney at The Coopersmith Law Firm, said in a statement filed to the court that loanDepot’s “dramatic image of a concerted, nefarious effort to secret and abscond with information and strategically exit is a false narrative.”
“The truth is that the individual defendants left loanDepot not to steal their loans,” Coopersmith said, “but because they had worked with Mike [Stowers] for years and were deeply concerned with loanDepot’s troublesome business practices and compensation tactics designed to maximize its own profit at the expense of its employees, and without regard to its own customers.”
Stowers and his wife, Meredith Stowers, who handled marketing for the team, were the first to leave loanDepot. The rest of the team, many of whom were close personal friends or extended family members, alleged that they left because of loanDepot’s changes to their compensation policy, loanDepot’s unwillingness to let loan officers work remotely after they had relocated, and c-suite level changes that slashed the number of underwriters and delayed loan closings, according to the June filing.
Stowers said in his filing that his wife downloaded a client list months before leaving for CrossCountry, without his approval, and that some of the members of his team also downloaded client names without his knowledge.
While that information was not used to close loans at CrossCountry, Stowers said in his filing, he alleged that loanDepot has communicated with borrowers using the names of his loan officers. In one instance, a customer called loanDepot’s call center searching for Peter Imming, and spoke with someone claiming to be Imming, Stowers claimed in a declaration.
“loanDepot must immediately stop using our names and should tell these customers that we are no longer affiliated with loanDepot,” Stowers said.
An attorney for CrossCountry declined to comment. Coopersmith also declined to comment for this story.
The seven employees loanDepot sued are also seeking the intervention of the California Labor and Workforce Development Agency, to investigate claims that loanDepot violated Regulation Z. The rule bars loan officers from being compensated according to the terms of a transaction.
That’s what the claimants allege loanDepot did, in a California Private Attorney General Act letter, filed in July. The ex-employees claim loanDepot forced loan officers to either give up their commission, or overcharge veteran borrowers by 100 basis points.
PAGA claims can result in employers being compelled to release a significant amount of information, which can lead companies to settle earlier in the process. Employees can recover civil penalties for violations, as well as attorneys’ fees.
A loanDepot spokesperson said that the California Labor and Workforce Development Agency has not initiated an investigation.
“The claims outlined in the PAGA letter are unsubstantiated, and there is no present investigation by the Labor & Workforce Development Agency,” a loanDepot spokesperson said.
The claimants allege that on Veterans’ Affairs loans, loanDepot’s interest rates were 100 basis points higher than their competitors. Loan officers had to choose between offering competitively-priced loans to veterans, or receiving a commission, the filing alleges.
“Therefore, the loan originator who self-sources a VA loan is incentivized by loanDepot as a corporate policy, given loanDepot’s high interest rate charges for veterans, either to lie by falsely labelling the loan as branch sourced … or to charge the self-sourced, higher interest rate to the unsuspecting veteran, which many loan officers consider immoral,” the claim reads.
The lender is also defending against a lawsuit filed last week by its former COO, Tammy Richards, which alleged that company founder and CEO Anthony Hsieh pushed loan officers to cut corners to close loans. At one production meeting, Hsieh allegedly said, “We must immediately close loans regardless of documentation.”
The company has called the claims “outlandish,” and said it had previously ordered an independent review of the allegations, which it found to be without merit.
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 reported its revenue increased from $1.3 billion in 2019 to $4.3 billion in 2020 to the Securities and Exchange Commission filings. The company originated about $100.7 billion in loans in 2020.