May 21, 2008 7:02 pm US/Pacific
Oakland Bank's Lending Sparks Ex-Employee Lawsuit
OAKLAND (CBS 5) ―
A former employee of Oakland's World Savings is suing the company (now owned by Wachovia) and its former principals, saying he was fired in retaliation for his reporting of improper practices and violations of state and federal laws including the Sarbanes-Oxley Act by World in selling loans in San Francisco and the Bay Area.
In a complaint filed in Alameda County Superior Court, former loan consultant Paul Bishop says he warned World managers prior to the company's sale to Wachovia that he had concerns about what he describes as potentially "predatory lending, fraud and the deceptive nature of stated income loans" at World, and about his belief that World was "committing fraud, violating its fiduciary duties and its obligations under the Sarbanes-Oxley act."
In the complaint, Bishop claims World "preyed upon" desperate borrowers who were "enticed into bad/predatory loans…without being told the complete truth about the loans" and that "borrowers were not told the full story about the terms, assumptions or risks of their loans".
In the filing, he says he told World managers the company's situation could be "compared to Enron" but that his warnings were ignored and he was fired after telling one manager that he was going to report the situation to the CFO of what was at that time the prospective buyer, Wachovia.
The complaint says Bishop began working for World in November of 2002 and in 2004 began to observe practices such as World brokers "helping outside brokers to circumvent underwriting guidelines" through classes where "it walked brokers through (World's) loan application and specifically told them to be sure borrowers qualify for loans, even indicating the necessity to overstate income, if need be, to get a borrower qualified."
The complaint says loan underwriting guidelines at World became "almost non-existent" as, "a great many unqualified borrowers were being massaged through the system, and made to look more qualified than they were". How? The former loan consultant alleges "incomes were inflated to allow a borrower to 'qualify' for a loan they could not otherwise qualify for and that they could not handle" and that documents were routinely falsified.
The complaint further alleges that "World managers routinely overruled underwriting guidelines that would hae prevented loans from being approved" by using what the filing calls an "exception to policy" to get those loans approved. It says some decisions to deny loans were "overridden" by senior loan originating executives.
In fact the complaint claims World "wanted to increase its business" in ethnic communities and "targeted" those groups.
But Bishop claims "borrowers were being enticed into bad/predatory loans with the offer of drastically reduced mortgage payments and the chance to take cash out, without being told the complete truth about the loans."
Representatives of World Savings and current owner Wachovia could not be reached for comment at publication time.
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