Los Angeles, California – A lawsuit has emerged, accusing loanDepot of coercing loan officers to prioritize higher-rate loans for borrowers in order to secure greater commissions. This practice reportedly underpins allegations of steering in the mortgage lending process. The claims suggest that when loan officers were unable to finalize certain deals, they would reroute borrowers to internal loan consultants, allowing the company to pay less in compensation.
However, the lawsuit argues that these transfers were predominantly superficial, with the original loan officer remaining actively involved in the transactions. If the documentation for a transfer cited legitimate justifications, such as a lower interest rate, the original loan officer reportedly received no commission. Conversely, if the reason was manipulated using approved explanations that were beyond their control, they received compensation at a diminished rate.
Legal experts highlight potential ethical dilemmas arising from the alleged practices. Troy Garris, co-managing partner of Garris Horn LLP, noted that while lenders can negotiate varying rates for different clients, using compensation structures tied to transaction terms raises concerns about fair lending practices. He pointed out that the regulations governing loan officer compensation are not crystal clear regarding the nuances of these transactions.
The nature of loan officer transfers is not in itself unusual in the mortgage business. Legal professionals explain that such transfers often occur for practical reasons, such as licensing issues, vacations, or workload distribution among team members. Garris acknowledged that when these transitions are handled appropriately, they are typically considered standard procedure.
The lawsuit draws attention to the role of internal loan consultants and whether their involvement violated any regulations. Kris Kully, a partner at Mayer Brown, emphasized the lack of explicit guidance from regulatory bodies regarding how loan originators should refer clients among themselves. This ambiguity has led to concerns in the industry as lenders adjust their practices.
James Brody, a partner at Brody Gapp LLP, revealed that his office has received numerous calls from lenders expressing frustration over the lawsuit. Many are worried that it could exacerbate already challenging conditions related to loan officer compensation regulations currently under review by the CFPB. Brody pointed out that the practices in question are not outright banned, but the lack of clear regulatory guidance is causing unease among lenders.
The CFPB is actively reviewing regulations surrounding loan originator compensation, including potential adjustments to existing guidelines. These developments, as noted by Brody, might lead to further complications for lenders who are trying to maintain compliance while also addressing evolving market conditions.
Concerns regarding compensation structures tied to lead sources persist in the industry. Ashley Jumpp from Brody Gapp LLP pointed out that while lenders are proactively seeking clarifications, existing frameworks might still be misconstrued in practice. This scenario raises the possibility of unintentional violations of loan officer compensation rules, particularly when documented lead sources are altered post-factum.
The allegations against loanDepot imply deeper, systemic issues, with attorneys characterizing the practices as “sham transfers,” involving individuals who did not adequately contribute to the work required for lower compensation rates. Jumpp highlighted the necessity for thorough examination of these internal referral practices to ensure they are not misused.
As the focus of the lawsuit unfolds, Ari Karen, the attorney representing the plaintiffs, expressed that the alleged behavior, if substantiated, would reveal significant deviations from common practices in the industry. He stressed that the potential repercussions for other lenders and consumers could be profound, justifying the legal action taken.
loanDepot has opted not to comment on the ongoing litigation, leaving industry observers to watch closely as developments continue.
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