loanDepot challenges class-action suit tied to LO comp rules, steering

loanDepot has filed a motion to dismiss a class-action lawsuit in Maryland alleging violations of loan officer (LO) compensation rules and borrower steering, arguing the plaintiffs failed to show they suffered a “concrete injury.”

The lawsuit, filed in July by five borrowers who obtained mortgages from 2019 to 2021, claims loanDepot engaged in a “sophisticated, years-long scheme” to falsify internal documents and federal disclosures to maximize profits ahead of its 2021 initial public offering (IPO).

The plaintiffs are suing under the Truth in Lending Act (TILA) and also allege wire fraud, securities fraud and conspiracy.

In its Sept. 12 filing, loanDepot argued the borrowers “lack standing” because their loans were not directly affected by the alleged scheme. The plaintiffs, deemed as “far from victims,” received loans with historically low interest rates ranging from 2.5% to 3.5%, the company claimed. 
A spokesperson for the plaintiffs has not responded to HousingWire’s request for comment.

​​According to the complaint, loanDepot required LOs who couldn’t push higher-cost loans to “transfer” the borrower to an internal loan consultant (ILC) under the false pretense that it was done at the “customer’s request.” But the transfer was described as “fiction,” since the original LO supposedly continued performing the same duties.

The firm allegedly punished LOs with reduced commissions if they failed to close loans at inflated rates, or eliminated compensation entirely if they didn’t falsify documentation to conceal the activity. Meanwhile, borrowers were routinely steered into more expensive loans by LOs who were under pressure to offer the highest pricing and faced financial penalties for failing to do so, the lawsuit claims.

None of the plaintiffs’ loans were transferred to these ILCs, so they claim they paid higher rates and fees.

“Even assuming these assertions are true — and they are not — this alleged ‘scheme’ was not used for Plaintiffs’ loans; it was purportedly used for loans issued to other consumers who ultimately received lower rates based on the alleged TILA violation,” the company said. 

“Put differently, Plaintiffs’ sole claim in this case rests on the stunning proposition that loanDepot should be held liable under TILA, and the LO Comp Rule specifically, because unidentified loan officers gave unspecified lower interest rates to unidentified borrowers who are neither parties in this case nor members of the proposed class. Neither logic nor law supports that extraordinary theory,” it added.

loanDepot also pointed to a three-year statute of limitations for TILA claims.

The company added that the plaintiffs provided “scant detail” on the particulars of the alleged scheme by failing to identify a single loan officer or manager. There’s also no information on how “Plaintiffs supposedly ‘discovered’ loanDepot’s alleged fraud,” the firm said.
“When plaintiffs seek to harm a company’s reputation by asserting sweeping claims of fraud without facts or evidence — and without any explanation for how they know about the supposed fraud — they should not get a second chance,” loanDepot argued. 

Judge Julie Rebecca Rubin ordered that the plaintiffs file a response by Oct. 10. The suit seeks repayment of interest and fees on affected loans.