Alleged Loandepot Steering Scheme Detailed In Amended Court Complaint

Borrowers have added new details in an amended complaint alleging that loanDepot engaged in a “sophisticated, years-long scheme” to steer customers into higher-rate loans to inflate its performance ahead of its 2021 initial public offering (IPO).

The class-action lawsuit, filed in July in Maryland, claims the lender required loan officers (LOs) who couldn’t push higher-cost loans to “transfer” borrowers to internal loan consultants (ILC). However, they allege these transfers were fictitious because the original LOs continued to perform the same duties.

According to the original complaint, if LOs truthfully documented a transfer to secure a lower rate for the borrower, they received no commission. But if they used a preapproved false justification, they were paid at a reduced rate. Consequently, loanDepot penalized LOs who didn’t close higher-rate loans — and withheld pay altogether if they refused to falsify records.

In September, loanDepot filed a motion to dismiss, arguing the plaintiffs offered “scant detail” on the alleged scheme by failing to identify any specific LO or manager. The company also said there was no explanation of how “Plaintiffs supposedly ‘discovered’ loanDepot’s alleged fraud.”

loanDepot declined to comment on the amended complaint.

Ari Karen, partner at Mitchell Sandler and attorney for the plaintiffs, told HousingWire, “The level of detail in the complaint and the exhibits speak for themselves and demonstrate why this action was filed.”

According to the new filing, communications between the plaintiffs and their counsel began in or after December 2024. At that time, borrowers were unaware whether they had been affected by the alleged practices. Their counsel reviewed closing documents in spring or summer 2025 and filed the lawsuit in July. 

The amended complaint includes a 2021 compensation plan signed by a LO that offered 120 basis points for originating a loan. However, when a “permitted loan transfer” occurred, compensation dropped to 30 bps. Transfers were allowed for reasons such as licensing restrictions, time away from the office, product certifications, protected builder accounts or customer requests.

Transfers called ‘smoke and mirrors’

The filing also cites testimony from a former loanDepot loan processor, given under oath and subject to cross-examination, describing the transfers as “smoke and mirrors.” The testimony was taken in a separate case involving loanDepot.

Other LOs testified that the transfers were used to match competitors’ pricing, at management’s direction. They said they remained responsible for the loans but received reduced compensation. One LO testified there was “no change in duties.”

According to the complaint, LOs were instructed to transfer loans before requesting pricing exceptions to ensure they received lower compensation prior to discounting rates for borrowers. The filing includes an email from a top executive directing this practice.

“The testimony of multiple loan officers, loanDepot’s own corporate designee, emails from top executives and publicly available screen shots from its loan origination system, demonstrate that not only were the transfers to ILCs a Sham Transfer, but they were also instituted in order to justify lower compensation when loanDepot needed to reduce the rates and/or fees on a loan to match a competitor,” the amended complaint reads. 

loanDepot argues borrowers “lack standing”

In its motion to dismiss, loanDepot also argues that 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. The borrowers claim none of their loans were transferred to these ILCs, so they claim they paid higher rates and fees.

“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.

The amended complaint further argues that, in the case, “higher-priced loans carried higher commissions, and unless a customer was able to convince a loan officer to forgo commission on a loan, the borrower would receive the higher rates and fees,” violating the Rate-Based Compensation Ban under Regulation Z. The rule prohibits loan originators from being paid based on loan terms or profitability, though it allows compensation based on loan volume.