5 mortgage industry legal battles to watch in 2024

Cyberattacks, labor disputes among legal battles to watch this year

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Legal battles underway in the mortgage industry today cover the fallout from cyberattacks, contract breaches and employment lawsuits.

Mortgage servicers have increasingly been targets for cyberattacks, leaving clients' personal information compromised and leading to a number of class action lawsuits regarding how these companies handle data breaches.

Academy Mortgage, for example, is accused of a lack of urgency in informing customers of an incident that took place in 2023, which made them vulnerable to identity theft. A class action suit alleges Academy lost control of its computer network and of highly sensitive personal information on March 21, 2023, but failed to report it to customers until Dec. 20, 2023, "an appalling nine months after the data breach occurred."

In the Academy breach, more than 280,000 customers had their birth dates and Social Security numbers compromised. The plaintiff blames Academy for, among other things, not maintaining reasonable security safeguards to protect customer data, making the mortgage lender an "easy target for cybercriminals."

In Texas, a district judge approved a request to combine twenty class action suits against lender Mr. Cooper into a single case under one plaintiff, Jennifer Cabezas, who was the first to bring a motion against the company after it was hit by the data breach in October. In total, that cyberattack exposed the PII of Mr. Cooper's 14.7 million customers.

Mr. Cooper is accused of failing to implement the security safeguards necessary to protect customer information, as well as not being timely and transparent in communicating with customers. The exposure of data "disturbs customers, as they no longer control their highly sensitive and confidential personal information, cannot stop others from viewing it, cannot prevent criminals from misusing it, and crucially cannot control where and to whom that personal information is sold and subsequently used," Cabezas' suit said.

Outside of cybersecurity, United Wholesale Mortgage (UWM) is suing Atlantic Trust Mortgage Corporation for breaching its controversial All-In agreement. This is the second legal action of its kind since December, pointing to a potential ratcheting up of UWM's ultimatum enforcement.

The suit accuses Atlantic Trust of sending 71 loans to Rocket Mortgage or Fairway Independent Mortgage since December 2022, "intentionally and directly undermining the entire purpose of the All-In Intuitive." UWM claims the breach of contract has damaged it in various ways "including but not limited to, allowing Atlantic Trust to reap the benefits of UWM's investments in and services provided to it as a broker partner, including UWM's proprietary technology."

UWM is also involved in other litigation regarding an employment contract the company made employees sign in recent years, which violates numerous labor laws, a judge with the National Labor Relations Board found.

Administrative Law Judge Susannah Merritt ordered UWM to rescind unlawful portions of the contract and distribute a revised version to current and former workers. Merritt agreed with federal prosecutors that large portions of the contract were "overly broad, ambiguous and/or discriminatory." The judge also found language around arbitration, social media use and media contact in violation of labor laws.

Catch up on these and other legal battles to watch this year, and check back with National Mortgage News for ongoing coverage.

Freedom Mortgage responds to CFPB federal lawsuit

Freedom Mortgage challenged the Consumer Financial Protection Bureau's (CFPB) federal lawsuit accusing them of haphazard HMDA data submissions for 2020. The agency claims Freedom, in submitting errors, violated a 2019 consent order in which it paid $1.75 million for misreporting the race, ethnicity or gender of mortgage applicants.

"The accuracy requirement in HMDA and Regulation C is unconstitutionally vague — there is no way for Freedom to determine from those laws what is required of it," wrote Herman Russomanno III of Russomanno & Borrello P.A., a Miami-based firm.

The 2020 HMDA submission in question included data on over 700,000 applications, originations and purchased loans. The CFPB required Freedom to resubmit after it found 51 data errors in a 159 file sample, its complaint said. Errors included tens of thousands of inaccurate purchase types; inaccurate calculations of rate spread and loan apps marked as "approved but not accepted" that were actually withdrawn.

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Freedom Mortgage challenges "vague" HMDA accuracy criteria

UWM sues Atlantic Trust for contract breach

A lawsuit filed by United Wholesale Mortgage (UWM) accuses Atlantic Trust of breaching its controversial All-In agreement and sending 71 loans to Rocket Mortgage or Fairway Independent Mortgage since December 2022.

"Atlantic Trust Mortgage is one of the companies who signed a contract and then knowingly breached it, therefore we will follow the agreed upon contract and win damages," a UWM company spokeswoman said in January. "This company is one of [the] very few companies we have found that has knowingly breached the contract, and we will continue to hold people accountable to the contracts they sign."

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UWM accuses Atlantic Trust of flouting "All In" ultimatum

Academy Mortgage took “an appalling nine months” to address data breach

A class action lawsuit filed in Utah alleges Academy Mortgage lost control of its computer network and of the highly sensitive personal information of 280,000 customers on March 21, 2023. It was not reported to customers until Dec. 20, 2023, "an appalling nine months after the data breach occurred."

This lag "made the victims vulnerable to identity theft without any warnings to monitor their financial accounts or credit reports to prevent unauthorized use of their PII," the filing states. In doing so, Academy "violated state law and harmed an unknown number of its current and former consumers" and "betrayed" the trust of customers by not having up-to-date security practices to prevent a cyberattack, plaintiff Lazaro Stern's suit said.

Read more:

Academy Mortgage accused of dragging feet in data breach alert

UWM is ordered to clean up unlawful employment contract

A United Wholesale Mortgage employment contract violates numerous labor laws, a judge with the National Labor Relations Board found.

Administrative Law Judge Susannah Merritt ordered UWM to rescind unlawful portions of the contract and distribute a revised version to current and former workers in a Jan. 11 decision. The ruling, still pending final approval by the 4-member NLRB board, would apply to the lender's contracts in effect any time since Dec. 21, 2021.

"The decision should send a message to any company that bases its employment model on unlawfully curtailing the rights of its workers," attorney Matthew Clark of Detroit-based Gregory, Moore, Brooks & Clark, P.C., who filed the case, wrote in an email to Andrew Martinez, reporter for National Mortgage News.

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Judge finds UWM employment contract violated workers' rights

Judge combines twenty class action lawsuits in Mr. Cooper PII case

Twenty class action suits pending against Mr. Cooper, stemming from a cyberattack that exposed the PII of its customers, will be combined into a single case under plaintiff Jennifer Cabezas, the first to bring a motion against the company after it was hit by a data breach in October.

There is "little to no risk of prejudice or confusion from consolidation as each of the plaintiffs consented to this motion, and their counsel are collectively and cooperatively working together and agree consolidation is in the best interest of plaintiffs," court documents said.

Mr. Cooper has moved to rectify the situation by offering to compensate current and former borrowers for the breach by footing the bill for two years of complimentary identity-protection services, including credit monitoring.

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Judge combines lawsuits against Mr. Cooper over data breach