Whistleblower Claims Navy Federal Retaliated After Alleged Illegal Lending Complaint Filed

An assistant manager for the world’s largest credit union claimed the $128 billion Navy Federal Credit Union allegedly retaliated against her for blowing the whistle on mortgage lending practices she claimed were illegal.

These allegations were made in a federal lawsuit filed in July by Michelle Stevenson, a 20-year Navy Federal employee who served as an assistant manager of Navy Federal’s mortgage underwriting in Herndon, Va. She is now on disability leave because of what she described as extreme emotional distress from the credit union’s alleged retaliation.

In a prepared statement, the Vienna, Va.-based Navy Federal said Thursday: “Navy Federal Credit Union complies with applicable law, and we are confident this issue will be appropriately resolved.” The credit union has so far not filed its answers to Stevenson’s allegations in U.S. District Court in Alexandria, Va.

In addition to the allegations of illegal mortgage lending practices, Stevenson claimed Navy Federal mortgage underwriters were being pressured to issue loans without reasonable good faith determination that the members could repay those loans. The lawsuit also alleged that a 25-year mortgage underwriting employee recently retired in part because of the alleged “unethical loan decisions she was forced to make.”

What’s more, Stevenson alleged that a Navy Federal vice president of mortgage underwriting was directly involved in processing a loan for her daughter. The vice president allegedly notified the reviewing mortgage production employee loan supervisor that the asset documents for her daughter’s loan application was not going to be provided and instructed the supervisor to move forward with the loan without the verification of assets, as required by federal law. The supervisor allegedly followed the vice president’s directive, according to the lawsuit.

Stevenson joined Navy Federal in 2000 and received four promotions and annual salary increases. She became an assistant manager for the credit union’s mortgage underwriting in 2017 and was responsible for more than 40 direct reports.

In that same year, she learned that Navy Federal was taking compensating factors into account when issuing loans, but it was not requiring verification and documentation for compensating factors. Although financial institutions are allowed to consider compensating factors when considering issuing mortgages, federal law requires that the compensating factors be verified and documented, according to the lawsuit.

Though Stevenson sent three emails in 2017 to her management chain about this issue, including an email about CFPB supervisory guidelines and requirements to document compensating factors, the compensating factors for Navy Federal residential mortgages continued to be undocumented, according to the lawsuit.

However, according to the lawsuit, one of Stevenson’s emails did get noticed by a Navy Federal manager, who in an email to another manager, asked whether Navy Federal’s policy on verifying compensating factors should be updated for both first mortgages and home equity loans.

“It appears when making Non-QM loans, CFPB is looking for lenders to verify income/assets – where in today’s world, we do not document compensating factors (IE: additional asset) with third party source,” the Navy Federal internal email read. “We use a Signed 1003 (document) as a testament that the borrower has those specific funds. I wanted to get your thoughts if we should escalate higher.”

The lawsuit alleged that as early as 2015-2016, the vice president of mortgage underwriting sent out an internal email that compensating factors did not need to be documented.

Between 2016 and 2017, at least four Navy Federal underwriters informed Stevenson that they were being pressured by the VP to approve loans, which the underwriters believed were not likely to be paid back. Two of those underwriters called Stevenson “in tears” about the pressure they felt from the VP to approve loans that they felt would go bad in the future, according to the lawsuit.

Details in the lawsuit included that the underwriters felt uncomfortable approving the loans that the vice president dictated that they approve. Those loans included low credit scores, often below 600, and debt to income ratios that were not within guidelines.

The vice president also allegedly reviewed loan applications that had been rejected by underwriters and then gave those loan applications to at least three of her “favorite” underwriters who would approve the loans.

According to the lawsuit, Navy Federal’s retaliation began in October 2018 when Stevenson started being excluded from emails and projects. In that same month, she was informed by her supervisors that she was being transferred to training to help develop underwriting training materials.

In her new training role, it’s alleged that Navy Federal took away the 40 employees who previously reported to Stevenson. She was provided with no performance expectations for her new job but was asked to write descriptions for job trainer positions for which there were no candidates. She was also given menial tasks, according to the lawsuit.

Stevenson claimed she was assigned to a new cubicle next door to the vice president of mortgage underwriting who hardly spoke to Stevenson. When the vice president needed something from Stevenson, the vice president would call Stevenson’s supervisor in Florida instead of speaking with Stevenson.

In Stevenson’s new role, which was a de facto demotion, she was isolated and colleagues stopped talking to her, the lawsuit claimed.

Stevenson has sued Navy Federal for violating the federal whistleblower provision of the Dodd-Frank Act that protects employees from termination or discrimination for reporting violations. She has also sued the credit union for violating Virginia’s whistleblower protection for employees who report violations of any federal or state law or regulation.