Countrywide Accused of Firing Whistleblower

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MORTGAGE EXPERT
2 · 01 · 08

A former regional vice president of a Countrywide Financial Corp. affiliate has filed a lawsuit against the company alleging that he was fired for alerting executives that he wouldn’t approval fraudulent loans.

Mark Zachary, who managed the Houston division of Countrywide KB Home Loans, has charged in the suit that he was dismissed for failing to meet loan approval deadlines that would have required that he engage in illegal and fraudulent practices, practices to which he had unsuccessfully alerted Countrywide executives.

These practices, Zachary alleges, include the encouragement and acceptance of inflated appraisals, the overstating of income of at least one borrower by a Countrywide loan officer, the flipping of full documentation loan applications into stated income or no income-no assets subprime loans, approving loans that lack the “critical documentation and information,” and setting and enforcing a 10 percent daily quota for approving a backlog of loan applications so that KB Home could start construction of homes under contract.

The inflated appraisals, according to the complaint, would dupe home buyers and investors and place them at risk because they were unaware of the true value of the asset.

The suit, filed on Jan. 17 in U.S. District Court for the southern district of Texas, names as defendants Countrywide Financial Corp., doing business as Countrywide Home Loans Inc., and Countrywide Mortgage Ventures LLC, also known as Countrywide KB Home Loans, which is a joint venture of Countrywide and KB Homes.

Zachary has also filed a complaint against Countrywide with the U.S. Department of Labor under the “whistleblower” act – Section 806 of the Corporate and Criminal Fraud Accountability Act, which also is Title VIII of the Sarbanes-Oxley Act.

In a statement sent to MortgageDaily.com, the Calabasas, California-based company said it had investigated each of Zachary’s claims “and found no merit to his accusations.”

Countrywide “has policies and procedures in place that aim to prevent the type of activities Mr. Zachary is alleging,” the statement said, and declared, “Countrywide stands behind its systems and processes and will defend this case vigorously.”

Further, Countrywide said that it “denies any allegations that Mr. Zachary’s termination was related to any concerns he raised. In fact, Countrywide has a firm policy against any such action.” And quoting from the company’s employee handbook, that statement noted that “it is a violation of company policy to intimidate or impose any other form of retaliation on an employee who reports any actual or suspected illegal or unethical conduct.”

However, it cited no cause, even in general terms, for Zachary’s termination.

Los Angeles-based KB Home did not respond to a request for comment.

Zachary, according to the complaint, first began asking Countrywide executives about “a questionable practice” in September 2006. And an audit in January 2007 “corroborated his concerns.”

He continued to question some practices and apparently in spring of 2007 he told his supervisor that “he was refusing to unconditionally approve an applicant who did not meet the requisite criteria due to the fraudulent and illegal nature of such conduct.”

Then, although he had been given “an excellent review” on February 28, 2007, “he was given a written warning by his CWKB supervisor for performance issues” three or four months later and then terminated him.

The suit seeks compensatory relief, punitive damages, including accrued insurance, pension and vacation benefits.

Countrywide’s lending practices have been the target of numerous complaints and investigations. The Illinois attorney general’s office, according to Deborah Hagan, chief of the consumer protection division, has been investigating the company since last summer for predatory and potentially fraudulent lending practices, including loans whose teaser rates reset after the first month.

The company is also being investigated by a U.S. trustee to determine, among other things, whether it inflated the amount it is owed on bankruptcy claims. The trustee, which monitors the bankruptcy courts and their cases for the public, has “a specific and grave concern” that Countrywide is using bankruptcy court rules and procedures “to obtain money and property from bankruptcy estates on either what appears to be faults factual basis or faults legal basis, a serious concern,” stated Leonard DePasquale, acting associate general counsel for the U.S. trustee, at a Nov. 15 hearing on 10 of those cases, which have been consolidated into one.

Last month, the company was reportedly subpoenaed by Florida Attorney General Bill McCollum over possible unfair and deceptive trade practices.

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Mortgage Daily Staff

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