Underwriter uncovered three frauds in one loan, suit claims

Introduction

In April 2006, Rachel Steinmetz, a senior loan underwriter at GreenPoint Mortgage Funding, flagged a loan application supported, she said, by a trio of frauds — overstated income, an overstated appraisal and a fake tenant lease agreement.

She suspended and then declined the loan.

Later she discovered that, while she’d been out of the office for Passover, someone had taken the opportunity to circumvent her decision and get the loan moving again, Steinmetz said in a lawsuit in federal court in New York.

She protested to a manager, Steinmetz said, but GreenPoint funded the loan.

This sort of cat-and-mouse game was typical in GreenPoint’s Manhattan branch, Steinmetz claimed. During the nine months she worked at the branch in 2005 and 2006, her suit alleged, managers used a variety of methods to get suspicious loans approved.

One manager’s frequent refrain, she said, was that she needed to approve a loan today because she’d declined one the day before: “You owe me.”

An operations manager, she said, told her: “Stop looking so carefully at the appraisals — just skim them! This branch has to maintain a 24-hour turn-around time on loans.”

Another manager, she claimed, told her to approve a suspicious loan because it was one of the first deals put together by a new loan officer “and she can use the encouragement.”

After Steinmetz uncovered evidence of fraud on loans submitted by a mortgage broker based in Florida, the suit said, one of her bosses became irate, telling her “you must approve these loans” because the broker was opening a New York office and he wanted to make sure it sent GreenPoint’s Manhattan branch “a lot of business. So do what needs to get done!”

The pressures became so intolerable, she charged, that she was forced into an “involuntary resignation” in June 2006.

In December 2006, as the mortgage market began to show signs of weakness, Capital One Financial Inc., snapped up GreenPoint as part of its $13.2 billion purchase of GreenPoint’s parent, North Fork Bancorporation.

Capital One’s relationship with GreenPoint didn’t last any longer than Steinmetz’s relationship with the lender. In August 2007, with the mortgage industry in full-fledged retreat, Capital One closed down GreenPoint. It estimated that it would suffer losses of some $900 million as a result.

Steinmetz sued under the whistleblower protections of the Sarbanes-Oxley corporate reform law. Capital One denied her allegations, and argued she had no case under Sarbanes-Oxley, because she failed to show how the alleged lending frauds could have hurt shareholders.

The case was ultimately settled, according to a Capital One spokeswoman. The spokeswoman declined to answer specific questions about Steinmetz’s claims, but noted that the bank has “a comprehensive ethics and governance training program” that encourages employees to bring forward any ethical or legal concerns.