July 14, 2012 -- Would you be able to keep a secret for four years that was so big it would make the five large U.S. banks pay up about $25 billion in a legal settlement?
Kyle Lagow of Plano, Texas, had to keep secret even from his wife and five children that he was one of the whistleblowers who led to this year's $25 billion mortgage settlement with banks over inappropriate lending schemes. His lawsuit led to a $1 billion settlement with Countrywide Financial's parent, Bank of America, in February with the U.S. attorney's office. Lagow's suit was finally unsealed under the U.S. False Claims Act in May, when he was awarded $14.5 million, a percentage of the settlement.
Lagow, 50, said the settlement is a "start" in settling improper mortgage practices with FHA-sponsored loans, but that was only 6 to 10 percent of his company's practice.
"The conventional side is massive. I don't know how to put a number on it," Lagow said with a deep Texas drawl. "There were such a large number of loans that went through the machinery. Will Congress do anything and say, 'We need to fix this machinery before it's going to happen again?' Who knows?"
It all started because Lagow was an appraiser from 2004 to 2008 with LandSafe Inc., a subsidiary of the subprime mortgage lender Countrywide Financial.
During his time working at Countrywide, which was purchased by Bank of America in January 2008, Lagow witnessed his company making bad loans on homes with low collateral. During that heyday of housing lending, executives encouraged appraisers to boost home values for sales.
"The game was rigged when you brought the people into it," he said.
Lagow said he tried to make suggestions of how to "fix" the situation.
"You go in there, figure out who was taking advantage of them, you lower the interest rates, make it easier to stay in their homes," Lagow had proposed to the company. "There were three or four things I wanted to do and they looked at me like I was nuts and said, 'No thanks, Kyle. Go back to doing your job.'"
Lagow complained to company executives about the inappropriate appraisal and lending practices, but they didn't find impropriety after investigating the matter, according to the suit.
"If you're an unsophisticated homebuyer, you walk in and all you want is the American dream," Lagow said. "You don't sit down and analyze that they own the appraisal business, mortgage business, and has a joint venture with the builder. No one was looking out for them."
He said he was never given a clear reason for losing his job in November 2008, but that the company "wanted to go in a different direction."
"My suspicion was that they didn't want Bank of America to know what they were up to," he said. "That's just my opinion."
As the recession deepened, and seeing "a lot of people who were damaged" in the housing market, Lagow contacted Hagens Berman LLP in Seattle in the spring of 2009. Lagow said he chose to contact the law firm because it previously filed a related suit against KB Homes.
"I went to them and I said, 'What can I do to help you? How can I help these people get back on track and make them whole?'" Lagow said.
In May 2009, he filed his lawsuit against Countrywide and various executives and it was sealed as part of the wider Department of Justice investigation. He could not speak a word of the lawsuit, the federal probe or that he was trying to help fix a "rigged system" to anyone, while being unemployed and nearly broke.
"If you can imagine being in a bad economy and, all of a sudden, your income dropping to nothing and not being able to tell people or your wife and kids ... it was probably worse on the kids," he said. "Your kids looking at you like you are a failure. A lot of people would have bailed out. It was pretty tough. There were a lot of money issues and lack of money and, in your own mind, you think they're looking at you because you failed."
Three years later, the suit was finally unsealed, allowing Lagow to finally tell his family his secret, as reported by Reuters. He said he sat his family down in May, and explained the lawsuit to them and that it had been resolved.
"I don't think anybody believed until the funds actually hit the bank," he said.
Shayne Stevenson, one of his attorneys, said Lagow deserves the payment he received after all those years of waiting for legal process at professional and personal risk.
"Kyle, like most whistleblowers, did not come to a law firm trying to make a lot of money," Stevenson said. "He came to the firm because he wanted to help homeowners and appraisers who were being mistreated by Countrywide."
Because Lagow couldn't speak with anyone about the lawsuit, he said he was in constant contact with his attorneys, like Stevenson and Steve Berman.
"I bugged them at all hours of the day," Lagow said of Stevenson and an earlier attorney who worked on the case, "and I continued to drive both of them nuts."
He said he is leaving most of the $14.5 million, minus attorney fees and taxes, to his five children, ages seven to 26.
Unemployed for three years and, even at 50 and being hopefully a little bit wiser, Lagow said he is still actively looking for a job.
"There's some organization out there who is going to look at this and say, 'Here's a guy who wants to do things right. We want that person on our team or part of our organization. We want the credibility and we want to say we try to do things right.' I don't know what firm that is because I haven't been able to find it yet," he said.