NEW YORK (Reuters) - A joint venture of mortgage lender Countrywide Financial Corp CFC.N and home builder KB Home (KBH.N) has been sued by a former vice president who said he was fired after complaining about lending practices, court papers show.
According to a complaint filed this month in U.S. district court in Houston, the former executive Mark Zachary alleged that Countrywide KB Home Loans approved unqualified borrowers for loans so that KB Home could build more homes.
Zachary, who joined the venture in Aug 2006, was fired in mid-2007 despite having received a favorable performance review in February, according to the complaint.
Countrywide, based in Calabasas, California, said Zachary’s claims lack merit, and that it has procedures to prevent the activities he alleged. “Countrywide stands behind its systems and processes and will defend this case vigorously,” it said in a statement.
KB Home, based in Los Angeles, did not immediately return a request for comment.
According to the complaint, Zachary questioned Countrywide’s practice of using for KB Home just one appraiser whom was “strongly encouraged” to inflate appraised values by up to 6 percent because “that was the way KB Home wanted it.”
He also questioned what he called Countrywide’s practice of converting loan applications that required full documentation into “stated income” or “no income, no assets” applications, saying loan officers would sometimes help borrowers submit applications with false income amounts, the complaint said.
“It gives a snapshot of the lending practices in the industry,” said Philip Hilder, Zachary’s lawyer, in an interview on Tuesday.
Zachary also filed a whistle-blower complaint with the U.S. Department of Labor, the complaint said. The Houston resident has since found new employment in real estate, Hilder said.
Bank of America Corp (BAC.N) agreed on Jan 11 to buy Countrywide for about $4 billion. Kenneth Lewis, the bank’s chief executive, on Tuesday said at an investor conference that “everything is a go to complete this transaction.”
A Bank of America spokesman declined to comment on the Zachary’s lawsuit.
Reporting by Jonathan Stempel; Editing by Carol Bishopric