New FOIA Response from HUD Reveals 646% Increase in Foreclosures against Seniors in 2016

ADVOCATES QUESTION IF HUD SHOULD BE DOING MORE TO PROTECT SENIORS FROM NEEDLESS FORECLOSURES

November 15, 2017 San Francisco, CA —New data (fact sheet) from a Freedom of Information Act request, released today, indicates that there was a 646% increase in foreclosures last year against seniors with federally insured reverse mortgages as compared to the previous 7 years. In January 2017, the California Reinvestment Coalition and Jacksonville Area Legal Aid submitted a Freedom of Information Act (FOIA) request to the Department of Housing and Urban Development, seeking data about reverse mortgage foreclosures in HUD’s Home Equity Conversion Mortgage (HECM) program, and about a new HUD program meant to keep widowed and widower non-borrowing spouses in their homes after the death of their spouse. The FOIA response includes state by state foreclosure numbers for Financial Freedom and the industry.

Increase In Foreclosure Numbers From Foia 10.35am

“This new data adds to our concerns that HUD is asleep at the wheel when it comes to protecting vulnerable seniors from foreclosures that shouldn’t happen,” explains Kevin Stein, deputy director at the California Reinvestment Coalition. “Seniors are losing their homes at an alarming rate, and HUD appears to be doing little more than rubber-stamping foreclosure requests by servicers who should be making every reasonable effort to preserve senior homeownership whenever possible.”

“Each reverse mortgage I have reviewed contains a clause that requires the lender/servicer to “reinstate” the mortgage as soon as the condition of default is cured, either before or after the foreclosure lawsuit is filed. It is very difficult to understand why lenders and servicers continue to ignore this requirement and create arbitrary servicing hoops for seniors to jump through so, ostensibly, the servicer can foreclose, explains Lynn Drysdale, Division Chief, Consumer Advocacy and Litigation Unit at Jacksonville Area Legal Aid which filed the FOIA request with CRC. “Seniors deserve protection from servicer mistakes, and HUD needs to dramatically step up its monitoring and enforcement of this industry before it’s too late.”

Alys Cohen, staff attorney at the National Consumer Law Center adds: “The steep rise in reverse mortgage foreclosures reflected in this data is extremely concerning. From our experience working with advocates around the country, we know that seniors struggling to pay property taxes and homeowners insurance represent a significant chunk of reverse mortgage foreclosures. HUD’s initial response suggests that the data on reasons for reverse mortgage foreclosure are not being collected or analyzed adequately. Older borrowers need the opportunity catch up on these property charges through reasonable loss mitigation options, which will only happen if HUD changes its policies to require that lenders make those options available.”

“The dramatic increase in reverse mortgage foreclosures is alarming, both in New York state and nationwide. Reverse mortgage foreclosures are especially devastating because they put some of our most vulnerable homeowners at risk of homelessness over what is often a relatively small amount of money. We hope this new data analysis serves as a call to action for policymakers, regulators, and lenders to reverse this disturbing trend,” said Christie Peale, Executive Director of the Center for NYC Neighborhoods.

Top 5 States

The new data from HUD show that in a mere 9 month time period (April 2016 to December 2016), there were 32,976 foreclosures on federally insured reverse mortgages. In comparison, HUD disclosed in an earlier FOIA response that from April 2009 until April 2016 (a seven year period), there were 41,237 total reverse mortgage foreclosures in the HECM program. When the total number of foreclosures is computed as a monthly average, it shows the dramatic increase, from 491 per month from April 2009 to April 2016, to 3,664 foreclosures per month (3,173 more each month) from April 2016 to December 2016.

Advocates are deeply concerned about the new data, which adds to concerns that preventable foreclosures continue to happen because HUD’s program to help non-borrowing surviving spouses (the Mortgagee Optional Election) and state-sponsored foreclosure prevention programs aren’t well known about by the populations who would benefit from them, are dependent on servicer discretion for a senior to participate and benefit from the program, and are unevenly implemented by servicers and by HUD.

Financial Freedom had a 302% increase in foreclosures: The new FOIA data also revealed a 302% increase in foreclosures last year by Financial Freedom, the reverse mortgage servicer previously owned by OneWest Bank. A 2016 FOIA response indicated that Financial Freedom had been responsible for 39% of all federally insured reverse mortgage foreclosures between April 2009 and April 2016, despite only servicing an estimated 17% of the market.

Joseph Otting, the president’s nominee for the Comptroller of the Currency, was CEO of OneWest Bank from October 2010 until he was fired in 2015 after OneWest was purchased by CIT Group. In May this year, CIT Group agreed to a $89 million settlement with the US Department of Justice over alleged fraud committed against the Federal Housing Administration, and the majority of the fraud was alleged to have occurred during Otting’s tenure. A New York Attorney General investigation into Financial Freedom continues, as does an investigation by the Office of Inspector General at HUD.

In October 2017, CIT Group announced plans to sell Financial Freedom, but refused to disclose who the buyer is. Given Financial Freedom’s track record, advocates are concerned and want to know what improvements a new buyer will implement to prevent more alleged fraud and to ensure there will be no more avoidable foreclosures against vulnerable seniors.

Recommendations to Congress, HUD, and the CFPB

1) Require Servicers to Help At-Risk Seniors: The Ranking Chair of the House Financial Services Committee, Congresswoman Maxine Waters, has introduced legislation, the Preventing Foreclosures on Seniors Act that would require the mandatory assignment of federally insured reverse mortgage loans to HUD if a non-borrowing spouse was living in the home at the time of death of the borrower.

2) Increased Oversight and Enforcement to Protect Seniors: Based on the alarming increase in foreclosures and defaults, advocates believe that HUD and the Consumer Financial Protection Bureau should increase their oversight and enforcement activities to better protect seniors, to hold institutions accountable for noncompliance with applicable rules, and to ensure that no unnecessary foreclosures take place.

Enhanced oversight, scrutiny and enforcement requires that:

2A: Servicers must improve their processes: Advocates have heard from a number of seniors and their families that reverse mortgage servicers are incorrectly determining that a senior is no longer occupying their property, and are moving to foreclose as a result. HUD must do a better job monitoring servicers when they report “non-occupancy” as the reason for foreclosing. In some cases, this may be because the homeowner didn’t respond to a mailing from their servicer, asking them to confirm their continued occupancy. Advocates have also worked with a number of homeowners whose reverse mortgage servicer improperly either forced-placed insurance, or paid property taxes prematurely.

2B: HUD should redouble its efforts to keep seniors in their homes when possible, including ensuring that seniors and their servicers are aware of and utilize programs to help preserve homeownership. Under the Hardest Hit Fund, some states have created programs to help seniors facing foreclosure because of a reverse mortgage. In California, a pilot program to assist seniors with property tax expenses has helped just over 600 seniors as of September 2017. Other such programs exist in Florida, Illinois, Michigan, and Oregon. No seniors in these states should lose their homes where existing programs can help.

2C: In the case of a borrower’s death:

o Servicers and HUD must ensure that any non-borrowing spouses in the home have been made aware of the HUD MOE option and how it may enable them to keep their homes.

o HUD must ensure that heirs are aware of their rights to purchase the home and be given a meaningful opportunity to do so.

3) More transparency and oversight of reverse mortgage company change of ownership, such as the reported sale of Financial Freedom to an unnamed purchaser. All regulatory approvals for the sale of reverse mortgage originators and servicers should be withheld until regulators have considered the experience and comments of reverse mortgage borrowers, Non Borrowing Spouses, and heirs who will be impacted by the sale (as well as nonprofit attorneys and housing counselors who are helping seniors to avoid preventable foreclosures). Regulators should require the companies to complete independent audits that can be reviewed by regulators to determine what issues at the company for sale must be fixed, if any, and whether the purchasing company has the capacity, policies and controls to make those fixes in order to prevent all unnecessary foreclosures against vulnerable seniors.

Fact Sheet: 12 Things to Know About Joseph Otting’s Record at OneWest Bank

Joseph Otting’s Tenure at OneWest: October 2010 until December 2015

As CEO, Otting arguably had more involvement in the company’s day-to-day operations than Mnuchin did as chairman.”  –Bloomberg News

“We integrated OneWest Bank and have been addressing the legacy issues that were, frankly, more challenging than originally expected.”   -Ellen Alemay, (CEO of CIT Group, which acquired OneWest)

1.Fraud against US govt. results in $89 million settlement

After whistleblower complaint, DOJ alleged OneWest division engaged in fraud from Mar. 2011 until Aug. 2016. Company agreed to $89 million settlement in May 2017.[ii] Otting was CEO for 56 of the 64 months when DOJ alleged that Financial Freedom fraudulently requested reimbursements from FHA related to reverse mortgages.

2. Redlining practices in California: HUD officially accepted complaint in Feb. 2017, and HUD investigation is ongoing. CRC alleges that since 2011, OneWest Bank violated Fair Housing Act as evidenced by low mortgage lending to African Americans, Latinos, Asians, and by locating branches mostly in majority white areas.[iii]

3. Originating vs. Foreclosing: CRC calculated that since its inception (March 2009), OneWest was about 9 times as likely to foreclose on a homeowner in a community of color in California as it was to originate a mortgage in a community of color in California. During 2014 and 2015, OneWest originated two mortgage loans to African American borrowers in its assessment area.[iv]

4. Ongoing Investigation by New York Attorney General into reverse mortgage unit.

Investigation announced in Jan. 2017. Reuters reports that probe is focused on complaints Financial Freedom “deliberately targeted seniors with dementia and other memory-loss.”[v] Financial Freedom stopped originating new reverse mortgages in mid-2011, but has continued to service (and foreclose) on reverse mortgages. Using a FOIA request, CRC determined that Financial Freedom was responsible for 39% of all HECM foreclosures from April 2009- April 2016, despite servicing only an estimated 14-17% of the market.[vi] A 2nd FOIA request to HUD to better understand Financial Freedom’s track record has not yet been answered by HUD.[vii]

5. Astroturf campaign to support bank merger
With millions of dollars on the line, in Jan 2015, Otting sent email to his Wall Street friends, business partners, and others, asking them to sign his petition to Federal Reserve Chair Yellen, urging her to not hold a public hearing on his proposed bank merger.[viii]

The text read (in part):

“I believe the management team and OneWest have demonstrated its commitment to our community and to serving the needs of not only their clients but the community at large and due to this, I do not believe there is a need for a public hearing.”

Regulators noted the support from the petition in their merger approval.[ix] But, CRC received an email from an alleged supporter, upset about his name being used without his authorization. After further investigation, it became clear neither the bank nor regulators used safeguards to prevent the many irregularities that emerged with “supporters” of Otting’s petition.

In 1 attachment of 593 “supporters” of the merger:[x]

·         100% gave Yahoo email addresses

·         High number of people allegedly signed petition in the middle of the night on Feb. 14, 2015.

·         About 1/3 of email addresses given by supporters bounced back, including gooeypooey69@yahoo.com

The OCC hasn’t responded yet to an expedited FOIA request on its public comment process being undermined.[xi]

 6. Material weakness uncovered post-merger

CIT Group uncovered material weakness at Financial Freedom and disclosed to investors in Feb. 2016. In Feb, 2016, CIT Group disclosed that it was delaying its annual report for 2015 after identifying this problem.[xii]  In July 2016 CIT Group disclosed to investors that it had recorded $230 million in reserves because of this issue.[xiii]

7. Blocking protections for widowed homeowners

In 2015, the CA Chamber of Commerce placed a state bill, AB 244, on its notorious “jobs killer” list to scare legislators away from voting for it.[xiv] The bill would have protected widows and widowers from unnecessary foreclosures. The Bank has also argued that it is not subject to California’s Homeowner Bill of Rights foreclosure protection law.[xv]

Otting was Chair of CA Chamber of Commerce at the time, but never publicly stated if he placed the bill on this list, nor has he defended or distanced himself from the Chamber’s stance against California seniors. A successor bill overcame the Chamber’s obstruction a year later.[xvi]

8. Consent order for robo-signing foreclosures

In 4th quarter of 2010, bank regulator(s) conducted on-site reviews at OneWest and identified numerous problems in the bank’s foreclosure practices.[xvii]

Otting and Mnuchin signed a consent order in April 2011. As CEO, Otting was supposed to oversee changes, but OCC order was not terminated until July 2015. Federal Reserve still has not terminated its order as of March 16, 2017.[xviii]

9. Bad merger integration

CIT Group’s board cited the poor merger integration in reducing then CEO John Thain’s salary 9%, awarding him only 2 out of a possible 20 points for that part of his review.[xix]

Merger was announced in July 2014, and conditionally approved in July 2015.Otting was fired 5 months later, though according to the WSJ, he “earned” $24.9 million in 2015, including $12 million in severance.[xx]

10. Obstruction of investigation by California AG’s office.
Attorneys in CA AG’s office identified foreclosure documents that were back-dated to before OneWest existed, and that bank improperly used “credit bids” at foreclosure sales to avoid paying taxes. The memo also cited OneWest efforts to obstruct an investigation into whether a predecessor to OneWest ever improperly sold reverse mortgages to seniors without providing legally required counseling.

Otting has never publicly explained what role he played (if any) in OneWest’s efforts to obstruct the AG’s office from gathering evidence. The leaked memo is dated Jan 18, 2013, and cites the 2011 consent order (signed by Otting) as one of the reasons for the investigation.[xxi]

11)  One of weakest CRA records of all CA Banks
OneWest’s track record of reinvesting into communities is one of the weakest of all California banks, according to CRC analysis.[xxii] OneWest’s CRA performance under Joseph Otting and its future CRA commitments means the bank is one of the weakest CRA performers in California.[xxiii]

12) A  “Laggard” at lending to small businesses
LAT called OneWest a “laggard”: “In June 2015, the final quarter before it was acquired, OneWest had a still-meager portfolio of just $125 million in small-business loans, or about 0.6% of its assets. Other similarly sized banks averaged about 5.6% of their assets in small-business lending.”[xxiv] CRC highlighted to bank regulators that in 2014, OneWest’s CRA reportable small business lending was a meager 70 loans, with only one loan of less than $100,000.[xxv]

The LAT also noted that starting in 2012, the bank reported making an above average number of insider loans, including to a bank studio where Mnuchin was on the board. That studio later filed bankruptcy.

SOURCES CITED
[ii] Settlement press release: https://www.justice.gov/opa/pr/financial-freedom-settles-alleged-liability-servicing-federally-insured-reverse-mortgage

Note: in June, House Financial Services Committee Ranking Member Maxine Waters and Ranking Member of the Subcommittee on Oversight and Investigations Al Green called on House Financial Services Committee Chair Jeb Hensarling to investigate the administration’s settlement with, and investigations into OneWest and Financial Freedom. Letter: https://democrats-financialservices.house.gov/uploadedfiles/06.30.2017_onewest_letter_to_hensarling.pdf
[iii] http://www.calreinvest.org/news/hud-accepts-crcs-redlining-complaint-against-cit-groups-onewest-bank
[iv] http://www.calreinvest.org/news/hud-accepts-crcs-redlining-complaint-against-cit-groups-onewest-bank For original press release, see: http://www.calreinvest.org/news/cit-group-accused-of-redlining-and-violating-fair-housing-act
[v] http://www.reuters.com/article/us-financial-freedom-settlement-idUSKCN18C2FL

[vi] https://badbankmerger.com/cit-groups-financial-freedom-is-responsible-for-nearly-40-of-hecm-reverse-mortgage-foreclosures-since-april-2009/
[vii]http://www.calreinvest.org/system/resources/W1siZiIsIjIwMTcvMDcvMjQvMTgvMDMvMzUvNzAzL0NSQ19hbmRfSkFMQV9GT0lBX1JlcXVlc3RfdG9fSFVELnBkZiJdXQ/CRC_and_JALA_FOIA_Request_to_HUD.pdf
[viii] https://www.americanbanker.com/news/onewests-otting-seeks-wall-streets-help-lobbying-yellen-on-cit  
[ix] The Federal Reserve noted: “A large number of commenters supported the proposal… Approximately 2,177 commenters supported the proposal, of which approximately 2,093 commenters submitted substantially identical form letters…” Source: (Page 3: https://www.federalreserve.gov/newsevents/pressreleases/files/orders20150721a1.pdf)

[x]http://www.calreinvest.org/system/resources/W1siZiIsIjIwMTUvMTIvMDEvMTlfMDRfMjRfMTcwX3B1YmxpY19jb21tZW50c19jaXRfb25ld2VzdF9mZWJfOF8yMDE1XzFfLnBkZiJdXQ/public-comments-cit-onewest-feb-8-2015%20(1).pdf

[xi] The California Reinvestment Coalition and Inner City Press submitted a Freedom Of Information Act request to the Office of the Comptroller of the Currency, asking for information about the email issue, as well as: number of complaints the regulator received; what safeguards the OCC uses to prevent fake support for bank mergers; if the OCC conducted any investigations into problems with Financial Freedom and reverse mortgage originations; if the bank had conversations with federal bank regulators related to pre-emption, HBOR, the AG investigation, Joseph Otting’s firing, and more.

To read the FOIA, click here: FOIA REQUEST TO OCC.

Note: CRC was tipped off to irregularities with Otting’s petition after receiving an email from a Vallejo, California resident who discovered his name had been signed onto the petition without his knowledge. In subsequent research, CRC identified that of 593 emails in an attachment of “supporters,” 100% of them had Yahoo email addresses (Yahoo has about 3% market share), a great deal of the signatures were submitted in the middle of the night. CRC was informed that about 1/3 of the emails “bounced back” after an email was sent to them.  The email CRC received is below, and included a copy of the fake email that was submitted supposedly in support of the email: I am writing your this email regarding this bogus email (cut and pasted below), sent to comments.applications@ny.frb.org and We.licensing@occ.treas.gov  by you on my behalf which I came across on the internet today, the email address ********@yahoo is not mine and I did not authorize or send this email, and I did not authorize for you to use my name and address to be used for any support of One West and CIT Merger, I have no affiliation or whatsoever to this companies and would like you to stop using my name, address or email address, or I will have to go through legal action and notify proper authorities regarding this matter. I value my privacy and identity and take this matter seriously. thanks,*****   *****  For more on the emails, see: http://www.politico.com/story/2016/11/mnunchin-treasury-foundation-trump-232016
[xii] https://www.sec.gov/Archives/edgar/data/1171825/000089109216012893/e68535_nt10k.htm
[xiii] http://www.businesswire.com/news/home/20160728005491/en/CIT-Reports-Quarter-2016-Net-Income-14
[xiv] http://www.calreinvest.org/news/nonprofits-blast-california-chamber-of-commerce-for-picking-on-widowed-homeowners
[xv] https://www.eastbayexpress.com/oakland/saving-the-homeowner-bill-of-rights/Content?oid=4132390
[xvi] http://abc7news.com/travel/proposed-bill-could-protect-widows-children-from-foreclosures/1405648/
[xvii] https://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf
[xviii] http://ir.cit.com/doc.aspx?iid=102820&did=39861647
[xix] https://www.wsj.com/articles/cit-chief-john-thain-takes-9-pay-cut-on-his-way-out-1458588182
[xx] https://www.wsj.com/articles/cit-chief-john-thain-takes-9-pay-cut-on-his-way-out-1458588182
[xxi] https://theintercept.com/2017/01/03/treasury-nominee-steve-mnuchins-bank-accused-of-widespread-misconduct-in-leaked-memo/
[xxii] https://badbankmerger.com/citna-bank-cra-exam/
[xxiii] https://www.americanbanker.com/opinion/cra-goals-are-the-casualty-of-cit-onewest-merger
[xxiv] http://www.latimes.com/business/la-fi-mnuchin-onewest-lending-20170117-story.html  
[xxv] https://badbankmerger.com/citna-bank-cra-exam/

How did the bank regulators describe robosigning?

In case you missed it, both the Treasury Secretary and the nominee for the Comptroller of the Currency, Joseph Otting, were fielding questions about their track records at OneWest Bank, and the robo-signing that happened during their time at the bank.

Both men denied that their bank, OneWest, had engaged in robo-signing, despite the fact that they both signed a 2011 consent order for doing that.

Keeping in mind that Mr. Otting has been nominated for the Comptroller of the Currency role, it’s worth considering:

What did the 3 main bank regulators say about robo-signing and the consent orders that OneWest signed, along with 13 other banks?

1) Acting Comptroller of the Currency, John Walsh:

April 2011: “While the servicers got a couple of things right, what stood
out was the pervasiveness of flaws and failings right across the
process. Robo-signing may be the image that has lodged most firmly
in our minds from news reports, but other deficiencies, beyond the
mishandling of affidavits, were equally serious,” Walsh said. “That
such routine business operations could be so badly mismanaged as to
raise safety and soundness concerns was, quite frankly,
astounding.” [1]

Sept. 2011:“First, the scope of the enforcement actions that we took in April is very broad and comprehensive, and I think that’s been poorly understood. Looking at the details of the foreclosure review, the enforcement orders tackle a large number of problems that need to be fixed. While “robo-signing” has become a shorthand for the broken process, these orders go far beyond just fixing “robo-signing” of documents. They address the entire system of controls that must be in place to ensure that those practices don’t occur in the first place.[2]

Office of the Comptroller of the Currency 2011 Audit Report: “The volume of problem mortgages overwhelmed the capacities of the larger mortgage servicers and shoddy practices like “robosigning” resulted. Bank managers failed to pay enough attention to how simple, ordinarily low-risk aspect of the business were being done. Bank servicers, including the law firms and other vendors they employed, were skipping steps in back office operations and mismanaging case files in systemic dimensions.”[3]

2) Federal Reserve (Governor Daniel K Trarullo)

December 2010:  In the first portion of my testimony, I will explain our current understanding of the nature and extent of the deficiencies in mortgage documentation that have been so apparent in the robo-signing misconduct, as well as what the banking agencies are doing in support of a broader interagency effort to develop a full picture of these problems.[4]

3) FDIC Chair Shelia Bair:

May 2011: The FDIC is especially concerned about a number of related problems with servicing and foreclosure documentation. “Robo-signing” is the use of highly-automated processes by some large servicers to generate affidavits in the foreclosure process without the affiant having thoroughly reviewed facts contained in the affidavit or having the affiant’s signature witnessed in accordance with state laws. The other problem involves some servicers’ inability to establish their legal standing to foreclose, since under current industry practices, they may not be in possession of the necessary documentation required under State law. These are not really separate issues; they are simply the most visible of a host of related, unresolved problems in the mortgage servicing industry.

As you know, even though the FDIC is not the primary federal regulator for the largest loan servicers, our examiners participated with other regulators in horizontal reviews of these servicers, as well as two companies that facilitate the loan securitization process. In these reviews, federal regulators cited “pervasive” misconduct in foreclosures and significant weaknesses in mortgage servicing processes.[5]

Sources cited:

[1] http://www.pe.com/2011/04/14/foreclosure-fix-is-messy/

[2]  Remarks By John Walsh, Acting Comptroller of the Currency Before The American Banker Regulatory Symposium

Washington, D.C. September 19, 2011  http://4closurefraud.org/2011/10/10/fraudclosure-remarks-by-john-walsh-acting-comptroller-of-the-currency-before-the-american-banker-regulatory-symposium-washington-d-c/

[3] https://www.treasury.gov/about/organizational-structure/ig/Agency%20Documents/oig12027.pdf

[4] https://www.federalreserve.gov/newsevents/testimony/tarullo20101201a.htm

[5] https://www.fdic.gov/news/news/speeches/archives/2011/spmay2611.html

Did Joseph Otting Attend Dartmouth?

Since he was nominated for Comptroller of the Currency, Joseph Otting has been in the news a lot- but not for the reasons you’d imagine.

In fact, it appears that perhaps his biography stretched the truth about his education, just a wee bit.

Bloomberg explains

“His biographical information from the White House lists him as a graduate of the “School of Credit and Financial Management at Dartmouth College,” which is a continuing-education program for financial executives that operated on the campus of the Ivy League institution, but isn’t actually affiliated with it. Records from the program, which is run for two weeks each year by the National Association of Credit Management, confirm that Otting graduated in 1992 when he was a mid-level manager at Union Bank in Beverly Hills, California.”

In other words, Mr. Otting did not graduate from Dartmouth College. Instead, he took a four week program (spread out over two years) that happened to rent space at Dartmouth.

Stay tuned for his confirmation hearings.  Should be interesting to hear how he talks about robo-signing, foreclosing on widowed homeowners with reverse mortgages, signing a consent order for bad mortgage servicing practices, learning about an $89 million DOJ settlement at the reverse mortgage subsidiary he used to oversee, and what his views are on banks redlining communities.

Joseph Otting Nominated for Comptroller of the Currency

Paulina Gonzalez, executive director of the California Reinvestment Coalition, released this statement today:

“Mr. Otting’s nomination is another example of this president’s preference for filling key regulatory posts with Wall Street executives and former bankers with problematic track records. We can’t think of a worse choice for this important position. Less than three weeks ago, Mr. Otting’s former bank agreed to pay $89 million as part of a settlement with the US Department of Justice for alleged reverse mortgage fraud. The Dept. of Justice said the alleged fraud happened between March 2011 and August 2016, and Mr. Otting was CEO for most of the time (Oct 2010 until he was terminated in Dec 2015) this fraud is alleged to have occurred.

As CEO of OneWest Bank, Mr. Otting worked against the interests of Main Street homeowners, small business owners, seniors, and communities of color. His track record at the bank led to a redlining complaint that our nonprofit filed against the bank, an ongoing investigation by the New York Attorney General into problems at the bank’s reverse mortgage subsidiary; investor disclosures about material weaknesses at the company; one of the most problematic foreclosure records of all the banks in California; and a consent order with the Federal Reserve that’s still in effect.

The Comptroller of the Currency is one of the most important jobs in the nation for ensuring that large banks (including Mr. Otting’s former employer) are well-capitalized, well-regulated, and don’t engage in illegal or harmful practices against their customers. We imagine the Senate Banking Committee will have a great deal of questions about the many challenges Mr. Otting had in following the rules while running one bank in Southern California, and whether he’s truly qualified to serve as a regulator for over 1,400 banks.”

Joseph Otting and OneWest Bank: A Record of Cut Corners and Financial Heartaches

A Laggard at Small Business Lending: The Los Angeles Times labeled OneWest Bank a “laggard” after analyzing its small businesses lending record, citing its preference for private equity deals, and also noted the bank’s higher than average amount of insider loans.

Foreclosing in California, but not Lending: On the consumer side, the bank was about nine times as likely to foreclose on a homeowner living in a community of color as compared to originating a mortgage to a homeowner in a community of color.

Protecting Seniors Will Kill Jobs? Mr. Otting also served as chair of the California Chamber of Commerce. While he was chair, the Chamber labeled a state bill to protect widows and widowers from needless foreclosure a “jobs killer.” This designation prevented the bill from advancing in the California legislature that year and more California seniors likely lost their homes unnecessarily as a result.

Petition to Federal Reserve Chair Yellen: In trying to secure approval for OneWest’s merger with CIT Group, Mr. Otting infamously created an online petition urging Federal Reserve Chair Yellen to not hold a hearing on the proposed merger. Mr. Otting then asked his friends on Wall Street to sign it. In Mr. Otting’s judgment, his friends on Wall Street, thousands of miles away, were somehow better situated to provide input on a California bank merger than the community members who were actually going to be impacted by the merger. Advocates also raised questions about suspicious timing and email addresses for a number of the alleged “supporters” for the online petition by Otting.

What you need to Know about Financial Freedom Reverse Mortgage Settlement with the US Government for Alleged Fraud

Earlier this month, the US Dept. of Justice announced an $89 million settlement with CIT Group, the parent company of Financial Freedom.

As we explained in an earlier post, the Dept. of Justice declined to say whether they spoke with homeowners as part of the investigation.

Here’s some of the coverage of the settlement:

The Intercept: Steve Mnuchin’s Old Company Just Settled for $89 Million for Ripping Off the Government on Dodgy Loans 

Reuters: Mnuchin’s former bank in $89 mln settlement over reverse mortgages (CIT)

DS News: OneWest’s Financial Freedom Settle Allegations

CNN: Mnuchin’s former bank agrees to $89 million settlement with the U.S. government 

Reverse Mortgage Daily: Financial Freedom to Pay $89M Over Missed Reverse Mortgage Deadlines

HousingWire: Mnuchin’s OneWest subsidiary agrees to $89M settlement for reverse mortgage violations

ThinkProgress: Bank previously run by Trump’s treasury secretary pays big fine for defrauding the government

MortgageOrb: OneWest’s Financial Freedom Fined $89M For Improperly Servicing HECM Loans

 

 

CIT Group’s New 10-Q Has Interesting Information for Investors on Redlining and Reverse Mortgage Investigations

Earlier this month, CIT Group filed its 10-Q.  For people who have followed OneWest Bank, Financial Freedom (reverse mortgage servicer), Steve Mnuchin, Joseph Otting, redlining, or the New York Attorney General, there’s some interesting news you’ll want to read:

1) The HUD Office of Inspector General investigation:  BadBankMerger long-time readers may recall that CIT Group had previously disclosed receiving subpoenas from HUD’s OIG back in the 3rd and 4th quarters of 2015- shortly after the merger of OneWest and CIT Group was completed.  CIT Group’s latest 10Q was released on May 8th, 2017. At that point, the $89 million whistleblower settlement was not yet public.  CIT Group explained to investors: “The Company continues to cooperate with the investigation and is engaged in discussions with the HUD-OIG regarding resolution of the matter. We do not expect the outcome of the investigation to have a material adverse effect on the Company’s financial condition or results of operations in light of existing reserves.”dv

For those following the news this week, the Dept of Justice announced on Tuesday that CIT Group had agreed to an $89 million settlement related to the HUD OIG investigation. This settlement happened after Sandy Jolley, a long-time consultant for seniors and their families who are dealing with problems with reverse mortgages- including incompetence by the reverse mortgage servicers, blew the whistle on Financial Freedom.

According to the US Department of Justice:

The United States alleged that Financial Freedom sought to obtain insurance payments for interest from FHA despite failing to properly disclose on the insurance claim forms it filed with the agency that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from March 31, 2011 to August 31, 2016, the mortgagees on the relevant reverse mortgage loans serviced by Financial Freedom allegedly obtained additional interest that they were not entitled to receive.

When CRC reached out the US Department of Justice asking how many homeowners were interviewed as part of this investigation, or how many loans Financial Freedom had fraudulently sought reimbursement for, we were told: “This is not publicly available information so we have no comment.”  CRC asked because we have been contacted by a large number of seniors and their family members in dealing with various “challenges” when trying to work with Financial Freedom.

While it appears this investigation is mostly completed, it’s worth noting the following paragraphs (from the settlement agreement) with interest.

Perhaps there is still more to come?

Financial Freedom agrees to cooperate fully and truthfully with the United States’ investigation of individuals and entities not released in this Agreement. Upon reasonable notice, Financial Freedom shall encourage, and agrees not to impair, the cooperation of its directors, officers, and employees, and shall use its best efforts to make available, and encourage, the cooperation of former directors, officers, and employees for interviews and testimony, consistent with the rights and privileges of such individuals. Financial Freedom further agrees to furnish to the United States, upon request, complete and unredacted copies of all non-privileged documents, reports, memoranda of interviews, and records in its possession, custody, or control concerning any investigation 7 of the Covered Conduct that it has undertaken, or that has been performed by another on its behalf.

2) NY Attorney General Investigation:  While the HUD OIG investigation appears to be mostly completed, CIT Group disclosed that the Office of the Attorney General of the State of New York (“NYAG”), served a subpoena on the Company regarding HECM loans in the second quarter of 2017. According to CIT, “The subpoena requests documents and other information related to Financial Freedom’s HECM loan business in the State of New York. The Company is in the process of evaluating and preparing to respond to the subpoena and does not have sufficient information to make an assessment of the outcome or the impact of the NYAG subpoena.”

 

3) Redlining Complaint: Long-time readers know that CRC filed a redlining complaint with HUD about OneWest Bank in November 2016.  CIT Group provides an update to its investors about this complaint in its latest 10Q:
In the first quarter of 2017, HUD accepted a complaint from the California Reinvestment Coalition (“CRC”) alleging that CIT engaged in discriminatory housing lending practices from 2011 until the present, in violation of the Fair Housing Act (“FHA”). The Company has filed a response to the complaint denying the allegations. HUD has not yet determined whether there is “reasonable cause” to pursue or dismiss the complaint.