Is outsourcing in the mortgage industry a dirty word? A Houston jury thought so in our Allied Home Mortgage case. Although we and federal prosecutors accused Allied and its former CEO Jim Hodge of many bad acts, some of the alleged wrongdoing included outsourcing quality control work to the Virgin Islands.
To be clear, outsourcing isn’t illegal. But a company can’t escape its obligations under HUD rules simply by transferring work to a different company or country. In the Allied case, witnesses said that when questioned about Allied’s QC processes, some folks in the Virgin Islands didn’t even know what a mortgage was.
We are currently investigating whether other originators and underwriters are offshoring any aspect of their compliance or underwriting responsibilities. If they are, we want to determine if the people handling these functions are properly trained and if required, properly licensed.
Outsourcing in the lending industry is nothing new… banks and RMBS trusts often outsource servicing work to large U.S. based servicers. Lately, however, outsourcing seems to be synonymous with offshoring.
A HousingWire story from 2014 claims that Ocwen sent 73% of its servicing work offshore that year. The same article claimed that JPMorgan Chase, Citi and Nationstar were also sending servicing work offshore. Most of that work goes to India and the Philippines.
The rating agency Fitch has raised concerns about the industry’s offshoring practices. We share those concerns.
Although all aspects of outsourcing and offshoring raise concerns, we especially worry about the latest trend of sending underwriting, loan processing and QC outside the U.S. and far away from regulators.
Possible Whistleblower Awards for Inside Information about Outsourcing
Under the federal False Claims Act, industry insiders with information about fraud involving federally insured or backed mortgages may be eligible for a large cash award. That includes mortgages backed by the VA, FHA, Fannie Mae or Freddie Mac.
If a company outsources work and fails to meet regulatory requirements the conduct may be a violation of Act. Ditto if the outsourcing results in poor quality mortgages.
Underwriters must certify they are in compliance with all regulations and lending guides. A company that knowingly lies can be subject to significant penalties. The Act provides for triple damages and penalties up to $20,000 per each loan falsely certified as in compliance.
The False Claims Act also has a whistleblower award provision can substantial awards. Those awards are up to 30% of whatever is collected by the government from the wrongdoers. (Our 2014 Bank of America resulted in a total of over $160 million in awards being paid.)
Whether the outsourcing or offshoring concerns underwriting or servicing, we want to hear from you. If you know of offshored work being done wrong or with unqualified people, please call us. All inquiries are protected by the attorney – client privilege and kept confidential.
For more information, contact attorney Brian Mahany at or by phone at (414) 704-6731 (direct). You can also visit our False Claims Act whistleblower page for general information.
MahanyLaw – America’s Whistleblower Lawyers