Engaging Experts
After 25 years helping litigators find the right expert witnesses, Round Table Group’s network contains some of the world’s greatest experts. On this podcast, we talk to some of them about what’s new in their field of study and their experience as expert witnesses.
Engaging Experts
Engaging with Mortgage Lending Expert, Anna DeSimone
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The hidden world of mortgage fraud and litigation comes alive in this eye-opening conversation with Anna DeSimone, owner of Housing Research LLC and a preeminent expert in residential mortgage lending since the mid-1980s.
The financial services industry presents unique challenges for expert witnesses due to its thousands of state and federal regulations, each with numerous nuances and sub-rules. DeSimone walks us through her process of evaluating cases, from spreading dozens of appraisals across conference tables to identify patterns of fraud to preparing for grueling 12-hour court testimonies. Her insights into how seemingly minor errors can result in multi-million-dollar settlements illuminate the high stakes of regulatory compliance.
Whether you're in the financial services industry, legal profession, or simply a homeowner, this conversation offers invaluable wisdom about the complex interplay of regulations, technology, and human behavior in the mortgage market. Subscribe now to hear more expert insights that go beyond the headlines to reveal the true dynamics of professional fields.
Introduction to Anna DeSimone
Speaker 1This episode is brought to you by Roundtable Group, the experts on experts. We've been connecting attorneys with experts for over 30 years. Find out more at roundtablegroupcom. Thank you, engaging experts. I'm your host, noah Balmer, and today I'm excited to welcome Anna DeSimone to the show. Now. Miss DeSimone is the owner of Housing Research LLC, where she's a consultant specializing in residential mortgage lending. She's an award-winning author and an expert in mortgage fraud, predatory lending compliance, loan servicing and a whole lot more. Ms D Simone, thank you so much for joining me here today on Engaging Experts.
Speaker 2Oh, thank you for inviting me. Noah, Happy to be here.
Speaker 1All right. Well, let's jump into it. So you've been in mortgage and lending advisory services since gosh, the mid-80s at least. How did you first become involved? As an expert witness?
Speaker 2publishing and because I had written a series of three books that were commissioned by President Clinton under a White House executive order. I was well known as an authority on, you know, redlining and mortgage discrimination. So some of the earlier cases that I worked on had to do with predatory lending, unfair treatment, compliance to, you know, the Fair Housing Act, and it kind of grew. I have to say that on 100% of the cases that I have worked on, we've all resulted in favorable outcome for the lender. So I'm very proud of that. But what, as you can appreciate, you know, there are so many different. You know companies and types of businesses and industries that RTG is dealing with.
Speaker 2But the financial services industry is unique because it has thousands of state and federal regulations and within those regulations there are many, many different nuances and sub-rules. So when there is litigation between a plaintiff and a defendant and I have always represented mortgage lenders or banks who are the defendants, you know there's always something that's going on with the plaintiff and most, not all, but in most of my cases I found that the plaintiff was not acting honestly, that they were engaged in fraud, errors, omissions, they were providing discrepant information, and I find that when real estate values go down, people get nervous. They don't want to pay the mortgage anymore. They will look for a reason to get out of it, and so one of the most important lessons that I have learned from discovery, which entails review of thousands of documents listening to recorded phone call conversations with customer service representatives, you realize that there's always another side of the story.
Behind Mortgage Litigation Cases
Speaker 1Well, let me ask you this when you get that initial phone call and you're deciding whether or not this is a case that you want to take, how much of that do you find out before you really get started and start reading those thousands of pages of discovery? How do you kind of evaluate it at a higher level before you say, yes, I will go ahead and be your expert?
Speaker 2Well, what I find out is I might have a Zoom call or an initial phone call with the law firm that's hiring me and usually, with the mutual email confirmations of nondisclosure, they will send me a copy of the complaint or some confidential document which I'll read over, which is very common in unfair lending or predatory lending cases, and what I have found is that the focus is very, very strongly centered around the defendant's counsel wanting to prove that no laws were broken by the bank or the mortgage lender, typically in a case of foreclosure, and they want me to opine on the fact that everything was done by the book and in accordance with the regulation. In accordance with the regulation, but there's always a little bit of history that comes out which makes me think there's more to this story, and I think that when you're trying to prove in a court of law that, yes, the mortgage lender or the mortgage servicing company did comply with the rules, that doesn't always result in a favorable outcome, because there are hundreds and hundreds of distressed homeowners out there that, through sickness in their family, loss of job or for some other reason, they just can't afford to pay their house and they may be in foreclosure. And all of that makes sense, except that once you start looking at documents, you see that people were not being honest or not being honest, and the way I just worked on a case that was a half a million dollar suit. A borrower refused to leave his house after a foreclosure. He stayed in the house for three years, was suing his mortgage lender for a half a million dollars for stress, and all I was asked to do was prove that the mortgage servicer did everything right.
Speaker 2But what I found out was that this person had a $1,000 a month mortgage payment and was receiving income from a trust fund and hundreds of thousands of dollars over a 10-year period. But the mistake that he made was he signed a federal document saying my income is zero because three times the lender tried to work with him, gave him a reduced interest rate, called a loan modification or they did what's called a payment pause. They didn't charge him his mortgage payment for six months. Now, what helped win this case was the fact that to say the borrower was acting dishonestly carries away, and then you explain how someone signed a document that their income was zero under a federal bailout program.
Speaker 2That's a different story, and so I think that when I'm being hired to be an expert witness, I'd like to anticipate all of the possibilities. All of the possibilities Because, even though the suit is about, is the financial institution complying with the law? Did they send the correct document? Was it properly filled out? Was it issued in the timely manner, in accordance with a federal regulation or, in some cases, a state regulation? But that may not be the only thing. I am not going to overlook fraud if it's in a file.
Finding Fraud in Documentation
Speaker 1It sounds like there's a good deal of forensic analysis in your particular field. When you're going through all of this stuff, when you receive all of these files and you're drawing all of these conclusions and looking for fraud, do you ever feel like you're inundated with way too much paperwork? Like, how do you vet when you have thousands of thousands of pages? Decide, okay, here's a stack of what's really important to go through with a fine-tooth comb? Here's something that I'm going to browse and this is probably not important.
Speaker 2Well, what I want to do is to keep the cost down and controlled. I don't want to do 100 hours worth of work and then surprise the company that hired me with a huge bill, because well.
Speaker 2I have never asked for a retainer up front, but I know that that's not the customary role, but I just feel my work will prove itself. But what I do is I get an inkling when I open up. Well, sometimes I get an inkling just from reading the complaint and I may listen to a couple of. I'll read a couple of depositions from the plaintiff, or I will listen to a take of a deposition and I will tell the company that hired me I think I should be looking at more documentation or they'll send everything. But of course it takes a lot of time to look through the discovery. But just so you know, it's not always the homebuyer or the mortgage borrower.
Dealing with Opposing Expert Reports
Speaker 2I've worked on cases where a residential real estate appraiser appraised as many as 30 or 40 homes in different parts of the country. I've had more than one appraisal fraud case, fraud case, and what I do is I I spread copies of all these appraisals out on, like my dining room table or, when I did this in the office, a very large conference table, and you begin to see the similarities among all of the different appraisals. So not only is it the time looking at documents, sometimes it's worthwhile spending the extra time To print the documents out because, especially if you're looking for fraud Right, fraudsters do make the same mistake over and over again rebuttal reports where instead of making an expert witness report full cloth, you're taking your opponent's expert witness report and kind of dissecting it line for line.
Speaker 1Do you do a lot of that sort of work?
Speaker 2I've had to dissect other expert witness reports. When a homeowner claimed that their loan was predatory, they'll say they had an adjustable rate mortgage and they didn't know it was adjusting. I worked on six cases in one state in the United States and most of those four out of the six cases were handled by a nonprofit legal aid where the attorney representing the plaintiff believed everything they said. They said I didn't understand what I was doing. And so in one particular case, the plaintiff's rep counsel was absolutely adamant that the borrower was paying $75,000 more over the life of the loan than they would have paid if they hadn't refinanced. It was a rate reduction and the mortgage payment probably dropped $100 a month Sure, $100 a month Sure.
Speaker 2And the way I handled it and we ended up getting a summary judgment. As I said, $25 a week to a family means dinner on the table and these people aren't thinking 30 years from now paying that extra $75,000. They're thinking about that $100 a week every single week, that $25 a week on $100 reduction in their mortgage payment. When people choose to refinance, it is their decision and they understand. And no matter, you can keep telling them well, over 30 years you're actually going to pay more. They're looking at the here and now. That's the reality of a homeowner. In the Ninth Federal Circuit were homeowners who said that they didn't receive a copy of a specific document and once I looked at the file I found out they were playing this game multiple times and we ended up winning the case. I had to testify in court for 12 hours.
Preparing for Difficult Depositions
Speaker 1And four hours one day, eight hours the next day, and you know it's hard to prove when somebody is being talk about grueling depositions that go on for days and cross-examinations that are extremely tense and difficult. So tell me a little bit about your preparation process. How do you get ready for what is potentially going to be a very lengthy deposition or a very difficult cross-examination?
Speaker 2I anticipate that the plaintiff's attorney has certain motives and one of them is to discredit men. They can discredit you, I mean, even if you've been in the business world for 30 or 40 years. They can discredit you for what you majored in in college 50 years ago. I mean in the mortgage lending business. What you did five months ago is already outdated and so I anticipate that and I'm prepared to answer as best I can, as best I can. But they also sometimes want to focus in very narrowly on where you worked.
Speaker 2And I was speaking with a hiring manager on a very large consulting project recently and they were looking for expertise on a very specific type of servicing software and so they were looking at resumes. That said you know people were a vice president of a mortgage servicing company for 27 years and they're familiar, you know hands-on with this particular software program. And I said to this HR person I had 100 clients around the country that used the software and I said we had a license to go into that software program and my auditors would complete their audits and they're very familiar. I mean I wrote the checklist for auditing software and I said if I only had one job I would only know what my bank did. But when you're a consultant and you have 100 clients, you know what 100 banks do. So you get the idea.
Speaker 2So you know if there's a weakest link in an organization, a lot of the compliance. While there's litigation going on all over the United States right now, a lot of it is from state banking regulators. And there was a case in Massachusetts that just settled for $2.3 million and it was on a very, very minor mathematical error made in a truth of lending. Disclosure Resulted in a half a million restitution to borrowers and a $2 million suit to the mortgage lender. The state of California just settled on a multi-million dollar case and again it's errors. And so when I first started my consulting company 40 years ago which I mean, I ended up with 50 employees, including 25 staff attorneys. So I've had a lot of experience in compliance.
Speaker 2You know regulatory compliance, consulting, compliance, consulting, and what I found was when you have systemic errors in financial regulation in a bank or a financial institution, credit union, that goes on for years and years, it's because the manager said this is the way we always did. It said this is the way we always did it. And so when technology was first introduced in the 1980s there were people that were still running companies using three-by-five index cards and systems, and then in the 90s and early 2000s there were a lot of companies run on legacy systems and so when the conversions took place to go to more advanced technology, a lot of times the new system couldn't fully connect with the old system and people would say, well, why do we need due diligence? Why do we need a compliance check? Why do we need to beta test this? Why you know, if the engineer said this should work, it should work.
Speaker 2The problem is engineers that build software applications don't understand the intricacies of per diem interest, which happens to be the Massachusetts case. It's how many days' interest can you charge a borrower at a closing? So, like I said, what seems to be pennies cost this lender two and a half, almost $3 million. So, yes, outside points of view can help. So I guess being an expert witness in many ways is not unlike just being a consultant.
Speaker 1You know you mentioned working out of the Ninth Circuit for a case. You have to stay current in lots of different law that's ever-changing. You have an incredibly dynamic field. Tell me, what is it like A keeping abreast of everything as it changes, all the new laws, rules, regulations, even norms and technologies. And then also, what's it like when you get hired into a new venue that perhaps you haven't worked before, that you might have to do some research and find out what the laws are in that particular venue. How do you keep it all straight?
The Future of Mortgage Litigation
Speaker 2Yeah, well, as soon as I get a call it depends on where the venue is I check the laws out on the topic predatory lending and it could be something to do with reverse mortgages, which applies to seniors, and there are special laws for that. But I mean, I'm an industry news junkie, but how I prepare for being an expert witness is I am always anticipating. Where are the homeowners in America going to feel the most stress? And in areas like Nevada, where we've had the climate change and the dryness has caused you know, some of the foundations are collapsing because of the lack of water, with droughts, and then we've had wildfire issues. We've had a lot of weather-related disasters in America and flooding, and so when we see a handful of states in America where property values are declining, it is not just from lack of jobs or economic factors. Some of that has to do with weather-related disasters. It might have to do with the lack of hazard insurance. I have worked on some hazard insurance cases which resulted successfully for the defense, but I like to always think why is there a legal case? What is happening here and why? You know what is causing this borrower to say they didn't know they had an adjustable rate mortgage, or they didn't know what a zombie mortgage was. They didn't realize there was a balloon payment. Nobody ever told them, and they're scared. They're scared, and so I think that what we're going to see in the next two years is a slew of litigation in two areas. One of them will be borrowers who feel that they were pushed into a program or buying a home that wasn't right for them. Some of those will be among real estate brokers. Right, a lack of transparency Because of the changes in commission. Real estate agents are doing a lot of sneaky things. They're pocketing listings. They're trying to make as much money Industries who got rich want to sustain their lifestyle. But the other type of litigation that we're going to see in America in the next two years is going to be on the business-to-business level.
Speaker 2The number of loans that are originated by mortgage brokers continues to grow each year. So five years ago, brokers had 20% or 30% of the volume in America. Now it's like 40% to 50%. There's a growth in no income check type mortgages, and so the wholesale lenders are very, very eager for business, and there's an over-reliance of artificial technology, so it's a race to the bottom. The brokers are submitting loans to four or five wholesalers to see who can give them the fastest service, the path to least resistance, low rate, fast closing the least amount of paperwork. The wholesalers don't want to lose the business, so they use their AI systems to approve everything and they close the loan.
Speaker 2And then, six months or a year later, you find out that there were some defects in the loan. There was a puffed-up appraisal, maybe the borrower, there was some fraud in there, and what's happening is there has been a very big jump in what we call repurchases. So sure the wholesaler funded the loan for a half a million dollars. They find a defect and they go back to the broker and say you owe me half a million dollars, you're going to buy this loan back. So this is the kind.
Speaker 2So the litigation starts where who should have done their due diligence? And so that's where I come in. I'll say well, if you're using an AI-supported tool and there's no backup method that involves human eyes, you have to take some accountability with the fact that this was a loan that shouldn't have been made. So I think we're going to see a lot of business-to-business litigation coming up. Well, interest rates have been high for the past two years, for 10 years in a row. We had interest rates below 5% 10 years in a row and then all of a sudden they're floating between 6% and 7%, 7.5%, and so whenever rates go up industry service people, realtors, housing and housing finance they look for ways to find business to sustain their lifestyle, and there has been a lot of political pressure to loosen credit underwriting rules. I mean, I wrote a book that covered 45 countries in the world. It was called International Mortgage Banking. That I wrote for the MBA of America 20 years ago. And I can tell you all these other countries, they have a very simple system, very simple.
Speaker 1In general, have you worked as an expert witness in international matters?
Speaker 2No, because what happened? My book was published shortly before 9-11. And so anything that would have involved some travel. You know that was before the Zoom days. You know Fannie Mae bought 5,000 copies and they shipped the book to all of their participants around the world because at the time, 25 years ago, at the time they wanted to teach their mortgage-backed securitization framework to other developing countries. Technically, the mortgage-backed security was invented in Germany. It's called the Pan-Brief.
Speaker 2But what I did notice is that not only does the United States have hundreds and hundreds of laws and regulations they're not unified across the 50 states but, more importantly, the politicians are involved, so the attorney generals of each state. They fight over fair lending laws. They fight over laws for specific redlining. You know specific, you know redlining, and I feel that I mean I could be doing a lot more work. And one thing I do know is there were about 27 cases with the Justice Department on redlining and when the Justice Department fined these 27 lenders a cumulative $150 million over a three-year period and when these companies got into such trouble, they go for the white shoe law firms in Washington DC and they think I'm not going to pay $20 million with federal agency.
Speaker 2I want you to prove that we didn't discriminate, and I know exactly what they did wrong. I mean, to me it's like it's so simple. They're putting 100% of their mortgage applicants through an underwriting system. That is great for people who have had the same job for 10 years, have all their money in one bank and they haven't moved. I mean, this is only 20% of the buyers in America, so a third of homebuyers are self-employed. A very large percent have gifts and grants and they get money from their family, and so when they go online to the aggregators, they automatically get denied.
Speaker 1Right.
Building Expert-Attorney Relationships
Speaker 2So we had fewer denials. When people actually walked into a brick and mortar, shook hands and said I want to buy a house, those days the denials were very minimal. It's not about race. It's about believing that you don't need to have a face-to-face conversation with a customer, circumventing any possibility that there might be an accusation of discrimination. Oh, we don't, we don't, we don't. Every single loan goes through our system. Everybody is free to the same. You know, this is their defense. We're not looking at people and we're not asking questions. So how could we be, you know, accused of discrimination? I mean, that is really that that tactic hasn't worked.
Speaker 1I'd like to move to some of the general kinds of questions. When an expert witness is on a new engagement, you're working with an attorney that you haven't worked with before. What are the qualities that make for a solid expert attorney relationship? How do you get off on the right foot and how do you stay there? How do you maintain that throughout what is potentially you know a long and arduous relationship, throughout the course of the action?
Speaker 2Usually it's a phone conversation. I find that if someone goes on my LinkedIn profile or they're looking at my resume, I probably will never hear from them because it is just giving you know the cases, the case I worked on, my job experience, my school there's no way for them to get a comfort level and I find that in 90% of the phone interviews I did, I was called to be an expert and it's funny because a couple of cases just got dropped. I was strongly considered for a huge case that happened to be litigation between two federal agencies. It was huge and I agreed to look at them, to confidential disclosure and I gave my opinion on what I thought would be a good tactic and this is what I would suggest we do.
Speaker 2Anyway, I didn't get it, but I did get a very nice, you know. Thank you, you were really strongly considered. Well, it was in the news recently that the defendant lost the case and I often wonder did they really? Did somebody say, why is she mentioning that? That's not what this is all about? I can't give too much away because it's confidential.
Speaker 1Sure.
Speaker 2The thing is, I saw something that I thought could potentially help. It's a little bit about the business-to-business failures. If a mortgage lender goes under, somebody has to clean up the mess, and what I came up with these are the clues that somebody would have seen two years earlier, that they were distressed, that this was a potential, it could happen, and I still believe that. And so, again, I think that the mistake is. The purpose of the litigation is to prove that someone is complying with the law.
Speaker 1Do you have any other kind of red flags that you look for? You know this isn't going to go well. This is I know I shouldn't take this case or this isn't going in the direction that I want it to.
Speaker 2I have turned down, probably in the past 10 years, 20 cases because they were outside my area of expertise. There was a slight crossover, but I wasn't comfortable in saying that I was an expert in that area. Sure, saying that I was an expert in that area and they were fine with it, and it's not RTG but from a referral company. I don't think it's fair to an organization such as Roundtable Group to pretend that you can suddenly become an expert on a field that has some similar crossovers. As an example, I consider myself one of the nation's very top expert in residential mortgage. I have written a lot of policy guides on home equity lending. I taught classes on the topic of home equity lending, but I don't consider myself a home equity loan expert. It's because my office didn't audit those loans and every bank has their own different rules, and so I turned a couple of those down. I could brush up on it, but at the same time I just thought you know, it's not my strongest area. I think being honest with your capabilities and expertise is so important.
Advice for Experts and Attorneys
Speaker 1Before we wrap up, do you have any other additional advice for expert witnesses or even for attorneys who are hiring experts?
Speaker 2I think I've already alluded to the fact that there's so much. It's like you're seeing the tip of the iceberg. When a plaintiff says I was mistreated and I'm suing, I'm not paying, I wasn't treated fairly, they discriminated against me. I wasn't treated fairly, they discriminated against me. I think that the best thing for defense attorneys to do and say what else is going on here, you know, and keep an open mind that there's more than the checklist.
Speaker 1Is the document in the box Sage advice. Ms DeSimone, thank you so much for joining me here today.
Speaker 2Oh, thank you.
Speaker 1Absolutely, and thank you, as always, to our listeners for joining me for another edition of Engaging Experts Cheers. Thank you for listening to our podcast Engaging Experts. Our show notes are available on our website, roundhumorgroupcom.