A BofA whistleblower emerges from the shadows

Thu Jul 12, 2012 6:26pm EDT
 
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By Rick Rothacker

(Reuters) - For nearly three years, as Kyle Lagow struggled to find work and his finances crumbled, he kept a secret from nearly everyone he knew, including his wife: He was a whistleblower.

Lagow had filed a suit against his former employer, subprime mortgage lender Countrywide Financial, alleging appraisal fraud. He couldn't discuss the case, filed under seal, until this year when he was awarded $14.5 million for his role in sparking a $1 billion settlement with Countrywide's current parent, Bank of America Corp (BAC.N: Quote).

"You have to sit there in silence, and you just get up every day and beat your head against the wall," Lagow, 50, said in a recent interview.

The settlement has brought Lagow financial security and a measure of redemption. But it was a long, hard path. And even after his travails, he fears little has changed in the mortgage industry.

Lagow's suit, first filed in May 2009, was one of five whistleblower cases folded into the broader $25 billion mortgage settlement reached in February with Bank of America and four other lenders. The suits were brought under the U.S. False Claims Act, a Civil War-era law that targets those who swindle the government. Under the law, successful cases can earn whistleblowers between 15 and 25 percent of a settlement.

Lagow, who speaks with the drawl of his native Texas, ran his own appraisal company for 14 years before Countrywide offered him a job with more growth potential in 2004 at a unit called LandSafe Inc. Countrywide got into the business of valuing homes to earn additional fees during the mortgage lending process. Lagow's job was to hire and train new staff appraisers in multiple states.

Appraisers are supposed to offer independent analyses of home values to help a bank determine whether it makes sense to lend. If the home -- the collateral for the mortgage -- is estimated to be worth less than the buyer is willing to pay, the bank is foolish to make the loan.

What Lagow learned was that Countrywide wanted to make loans whatever the collateral was worth. LandSafe executives routinely pressed staff appraisers and independent appraisers to boost home values to ensure sales went through, according to a suit he filed in 2009.   Continued...

 
A customer stands at an ATM machine at a Bank of America office in Burbank, California August 19, 2011. REUTERS/Fred Prouser