Federal regulators are investigating allegations that Fieldstone Investment Corp., a Columbia subprime mortgage lender that has been hard hit by rising defaults, fired its general counsel in January for accusing senior management of illegal activity.
Cynthia L. Harkness filed the whistleblower complaint under the Sarbanes-Oxley Act, which is intended to protect employees who report fraudulent activity that can mislead investors in public companies.
Harkness, who had been with Fieldstone for three years, alleges that she was fired for reporting purported violations of securities and other laws at the company.
Fieldstone disclosed the existence of the complaint in a filing with the Securities and Exchange Commission. The company said that it plans to "vigorously defend" itself and that the complaint is "without merit."
"All I can say is we are investigating," Leni Uddyback-Fortson, a spokeswoman for the Occupational Safety and Health Administration, said yesterday.
Harkness couldn't be reached for comment. She lodged her complaint in March with OSHA, which is part of the Labor Department and has a whistleblower program. She's seeking reinstatement, lost wages and other damages.
Subprime lenders across the country are facing financial - and legal - difficulties as a growing number of borrowers, who often have poor credit histories, have defaulted on loans that come with high costs or adjustable interest rates. New Century Financial Corp., once one of the largest lenders to high-risk borrowers, sank into bankruptcy last month.
Fieldstone sells mortgages on single-family homes at dozens of branch offices across the country, as well as through independent brokers.
The company doesn't have a retail branch in Maryland but does originate some loans through wholesale channels here.
Roughly half of the loans that Fieldstone extended under its own underwriting guidelines in recent months were "liar loans," where little or no effort is made to confirm an applicant's income, according to a recent financial statement. And half of the loans were on properties in California, where home prices have been declining after a period of huge gains.
The company lost $69 million in the first quarter, after a loss of $68 million last year. As of the end of March, the company had $416 million in loans that were more than three months past due, or where collection was otherwise in doubt.
