Mr. Mnuchin’s Mortgage Marauders

How bad is Financial Freedom? Take a look at this analysis

JONATHAN TURLEY

By Mike Appleton, Weekend Contributor

“Corporation, n. An ingenious device for obtaining individual profit without individual responsibility.”

-Ambrose Bierce, “The Unabridged Devil’s Dictionary”

I have frequently criticized media coverage of legal issues. For example, news reports often attribute significance to orders on routine procedural motions that is wholly unwarranted. And even reporters with legal backgrounds are not clear and understandable in their explanation of court rulings to laypersons. So when I came across reports that Treasury Secretary-designate Steven Mnuchin’s bank had filed a mortgage foreclosure action against a 90 year old Florida widow over 27 cents, I was skeptical.

But the story interested me because the subject of the suit resides in Polk County, only an hour’s drive from where I live. In addition, with the advent of electronic filing in court proceedings, I knew that I could access the court files online and review the actual record in the case. I…

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Memo Shows Evidence of Illegal Foreclosure Practices At OneWest Bank While Steven Mnuchin was CEO

Memo Shows Evidence of Illegal Foreclosure Practices At OneWest Bank While Steven Mnuchin was CEO

CA ATTORNEY GENERAL STAFF CITED EVIDENCE SUGGESTING “WIDESPREAD MISCONDUCT” –COMMUNITY GROUPS CALL FOR SENATE INVESTIGATION PRIOR TO CONFIRMATION HEARINGWashington DC, January 3, 2017— A 2013 memo written by attorneys in the Consumer Law Section from the California Attorney General’s office is raising new concerns about the track record of OneWest Bank, and the ethics of its former CEO, Steve Mnuchin, who has been nominated to be Treasury Secretary by President Elect Donald Trump. David Dayen first reported on the memo earlier today in an article in the Intercept. 

The memo is based on a preliminary investigation by staff at the Attorney General’s office and was triggered by an earlier settlement by the bank with its banking regulator, “together with consumer complaints and the large volume of foreclosures conducted by OneWest.”

The memo focused on a number of fraudulent practices that OneWest was alleged to have engaged in, including:

1) Backdated foreclosure notices of default and other documents and had them notarized in order to “paper over misrepresentations, including cases the attorneys identified where bank staff had backdated documents to dates prior to OneWest’s existence. In the case of the notices of default, the Attorney General staff asserts that if OneWest had corrected these errors, this would have delayed the foreclosure process. In addition, OneWest filed these foreclosure notices with country recorders throughout the State which could subject OneWest to a felony charge under state law.

backdating

In some cases, OneWest is alleged to have backdated documents to before the bank even existed.

2) OneWest made and directed unlawful credit bids at foreclosure sales. According to the Attorney General staff, unlawful credit bids may “freeze out other potential bidders (which could include a borrower or his family).”

3) Due to the unlawful credit bidding OneWest claimed an exemption from the applicable city and county transfer taxes and no tax was paid.

4) Performed other acts in the foreclosure process without valid legal authority; and

5) OneWest Trustees, acting on behalf of OneWest, failed to provide due process to families by speeding up the foreclosure process and timeline.

Impact on Homeowners: The memos of the author explain what the bank’s alleged practices meant for homeowners facing foreclosure:

“As reflected in the examples cited above and appended hereto, in many instances, OneWest’s false filings and unauthorized conduct in the course of the foreclosure process harmed homeowners by denying them timely and important information about their foreclosures and potentially shortening the amount of time they had available to find a way to become current on their mortgage obligations.”

Consumer advocates expressed outrage and urged a full investigation prior to any votes on Mr. Mnuchin’s nomination later this month.

“Where’s there’s smoke, there’s fire, and the American people deserve a full explanation of these serious charges of fraud. Mr. Mnuchin and OneWest Bank need to turn over all of the evidence they previously obstructed so that their banking regulators can conduct a thorough investigation into these serious charges prior to any hearings about Mr. Mnuchin serving as our next Treasury Secretary. If Mr. Mnuchin’s bank wasn’t engaged in illegal behavior, why did they try and obstruct the Attorney General’s staff?” asks Paulina Gonzalez, executive director of the California Reinvestment Coalition.

The authors of the memo recommended that the Attorney General authorize a civil enforcement action against the bank, which did not happen. In citing challenges with filing the case, the authors of the memo cite concerns about federal bank regulators pre-empting their authority. OneWest and Wells Fargo have both raised pre-emption as defenses in legal cases related to the banks not complying with California’s Homeowner Bill of Rights law. The attorney general had previously filed amicus briefs arguing against OneWest’s position that it was not subject to the Homeowner Bill of Rights.

Additional Context: Senators are missing key information about Mr. Mnuchin, OneWest Bank, and Financial Freedom:

As part of its earlier merger with CIT Group, consumer advocates had asked for more information about OneWest’s track record which the bank refused to provide, including information about:

1) Total number of national foreclosures conducted by OneWest Bank and Financial Freedom (reverse mortgages) after Mr. Mnuchin and his group of investors bought the failed IndyMac, First Federal, and La Jolla Banks.

2) HUD OIG Investigation: CIT Group, which acquired OneWest Bank in 2015, disclosed to investors that it had received subpoenas from the Office of the Inspector General at HUD related to Financial Freedom’s servicing of reverse mortgage loans. The investigation appears to be ongoing, and likely covers a timespan when Mr. Mnuchin was at the helm of OneWest.

3) Modification and foreclosure data: While a spokesperson for Mr. Mnuchin suggested to the Washington Post that OneWest had made “over 101,000 modification offers,” advocates question how many of those modifications provided substantial enough payment relief that a homeowner could retain the home, and how many modified loans subsequently went into default, especially if the original modification didn’t provide a sustainable solution for the homeowner. Because 2/3 of OneWest foreclosures in California occurred in majority minority communities, advocates also suggest the bank should provide data about the extent to which homeowners of color received sustainable modifications, data which the bank likely already provided to the Treasury Dept.

4) Settlements and Court Cases: During the past six years, OneWest Bank and its subsidiary, Financial Freedom, have lost multiple lawsuits and/or agreed to settlements with homeowners for illegal lending, servicing, and foreclosure practices. However, the bank has never provided a comprehensive picture of these lawsuits and settlements which could help senators better understand Mr. Mnuchin’s leadership at the bank.
Example OneWest Settlement: OneWest Bank agreed to pay Greg and Irene Rigali, from San Luis Obispo, California a seven figure settlement after the bank foreclosed on the homeowners at the same time the homeowners were attempting to obtain a modification, a practice known as “dual tracking.” For more, see: CalCoastNews: “OneWest Bank pays 7 figures in mortgage fraud case.”

California Reinvestment Coalition Responds to Steve Mnuchin’s Likely Nomination for Treasury Secretary

Upon hearing the news that president elect Donald Trump will likely nominate Steven Mnuchin, former chair of OneWest Bank and board member of CIT Group for Treasury Secretary, Paulina Gonzalez, executive director at the California Reinvestment Coalition released this statement today:

“If Mr. Mnuchin is nominated to the position of Secretary of the Treasury by President Elect Trump it will continue an alarming trend of a series of appointments by Mr. Trump that signals a coming attack on civil rights, working families, and consumer protections by the administration.

We expect that the Senate will dig into Mr. Mnuchin’s track record, and we imagine the many families who lost their homes at the hands of OneWest will be watching closely and will also want to share their experiences as part of any confirmation hearings.

Wall Street has long argued for a loosening of regulations for the banking industry, protections put in place by the Wall Street Reform Act, otherwise known as, Dodd-Frank, and the Fair Housing Act and Fair Lending Laws enforced by the Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau. Mr. Mnunich’s nomination and his track record, detailed in a redlining complaint filed with HUD earlier this month, make it clear, the fox has been nominated to guard the henhouse.

Earlier this month, our nonprofit submitted a redlining complaint to HUD, highlighting a number of concerns about OneWest Bank and its track record in Los Angeles communities, as well as its maintenance (or lack thereof) of homes it had foreclosed on in Northern California.

Steven Mnuchin was chair of OneWest bank when most of these activities are alleged to have occurred and is now a board member of CIT Group, the owner of OneWest Bank. CIT Group is no stranger to controversy or bankruptcy, as it received over $2 billion in TARP money that it never repaid to taxpayers.

Our goal in submitting a redlining complaint to HUD is to prevent ongoing harm against borrowers and communities of color by OneWest Bank.

The complaint is based on analysis of publicly available mortgage lending data, and of OneWest branching data. In addition, Fair Housing Advocates of Northern California conducted a separate investigation into OneWest bank-owned homes and uncovered differences in how the bank maintained homes in predominantly white communities vs. neighborhoods of color.

Our analysis of the bank’s lending data revealed that OneWest’s home lending to borrowers and communities of color has been low in absolute terms, low compared to peer banks, and low when compared to what one would expect, given the size of the Asian American, African American, and Latino populations in Los Angeles.

As an example, in analyzing 2015 lending data, we determined that white borrowers were the only group where OneWest Bank had higher lending levels than its industry peers, and dramatically higher lending levels than one would expect, given the size of the white population in OneWest’s assessment areas. In comparison, its lending to Asian, African American, and Latino borrowers, has been well below the industry average and well below what one would expect, given the size of these populations.

We urge HUD to investigate these potential violations of the Fair Housing Act and to share the agency’s findings with the public as soon as possible. In the mean time, we strongly oppose having Wall Street Insiders, like Steve Mnuchin, guarding Wall Street.

We also think it is important and relevant for the public to know that this bank has foreclosed on over 36,000 families in California (and an unknown number throughout the US) and that 2/3 of these foreclosures occurred in majority minority communities.

We’re also interested to learn the results of a separate investigation by HUD’s Office of Inspector General, focused on problems with OneWest’s reverse mortgage loan servicing.

Our own investigation into OneWest reverse mortgage foreclosures revealed that the bank was responsible for 39% of all foreclosures on federally insured reverse mortgages- despite only servicing about 17% of this market.”

Additional background about OneWest Bank’s track record and its merger with CIT Group is available at www.badbankmerger.com

Redlining Complaint Filed Against OneWest Bank

CIT Group Accused of Redlining and Violating Fair Housing Act

CALIFORNIA REINVESTMENT COALITION AND FAIR HOUSING ADVOCATES OF NORTHERN CALIFORNIA FILE FAIR HOUSING COMPLAINT, URGING IMMEDIATE HUD INVESTIGATION INTO CIT GROUP’S ONEWEST BANK

San Francisco, CA, Nov. 17,, 2016—Yesterday, two nonprofit organizations formally filed a complaint requesting that the federal Department of Housing and Urban Development (HUD) investigate whether CIT Group violated and continues to violate the Fair Housing Act through its subsidiary, OneWest Bank. In 2014, CIT Group applied to acquire OneWest Bank, and after receiving regulatory approvals, the merger was completed in August, 2015.

The complaint alleges that OneWest Bank has violated the Fair Housing Act (FHA) through redlining practices such as failing to locate branches in communities of color and extending very few or no mortgage loans to borrowers of color. It also alleges OneWest maintained and marketed REO homes in predominantly white neighborhoods better than in neighborhoods of color.

The complaint can be downloaded here, and a supplemental narrative is available here.

Kevin Stein, deputy director of the California Reinvestment Coalition, explains: “Our analysis of OneWest suggests the bank has no significant branch presence in communities of color, and not surprisingly, its home loans to borrowers and communities of color are low in absolute terms, low compared to its peer banks, and low when compared to what one would expect, given the size of the Asian American, African American, and Latino populations in California. During 2014 and 2015, OneWest originated exactly two mortgage loans to African American borrowers in its assessment area. OneWest was far more likely to foreclose in communities of color than to make loans available to people in these communities. We call on HUD to fully investigate CIT’s redlining practices and to hold the bank accountable for its actions and the harm it has caused to communities.”

“Our investigation revealed troubling differences in how OneWest homes maintained their bank-owned homes (REOs) in predominantly white neighborhoods vs. neighborhoods of color,” comments Caroline Peattie, executive director of Fair Housing Advocates of Northern California (formerly Fair Housing of Marin). “The majority of OneWest REO homes in communities of color looked abandoned, had trash strewn about the yard and boarded up doors and windows, and weren’t clearly marketed as ‘for sale.’  In contrast, almost all of OneWest’s REO homes in white communities were well-maintained, had manicured lawns, and were clearly marketed as ‘for sale.’”

onewest-foreclosures-vs-originations-crc

Sharon Kinlaw, executive director of the Fair Housing Council of San Fernando Valley, adds: “The evidence included in this complaint suggests that OneWest Bank has steered clear of people of color in its assessment areas for a number of years. We want to know how many people were harmed and we look forward to learning what HUD finds out.”

Hyepin Im, founder and president of Korean Churches for Community Development, adds: “It was really disappointing for me to review the data and to see that even in 2016, it appears our communities are being redlined. We hope HUD will investigate this complaint and take decisive action to ensure people aren’t being excluded because of the color of their skin.”

Chancela Al Mansour, executive director of the Housing Rights Center, adds: “This complaint raises serious concerns about the extent to which people of color have been cut off from branches, mortgages, and other banking services that OneWest should be providing in the communities where it does business.”

The Fair Housing Act prohibits discrimination based on race, color, national origin, religion, sex, disability, or familial status, as well as on the race or national origin of residents of a neighborhood.

The complaint focuses on 3 primary ways OneWest is alleged to violate the Fair Housing Act:

1) OneWest Bank Branches appear to avoid communities of color:

OneWest’s sparse branch presence in communities of color effectively makes banking services and credit products (including mortgages) less available to people based on their race, color, and national origin, according to the complaint.

onewestbranches-2015-11-2-16

chart-of-onewest-branches

(Branch data and mapping courtesy of National Community Reinvestment Coalition)

2) OneWest Makes Very Few Mortgage Loans to Asian American, African-American, and Latino Borrowers in its six-county assessment area.

According to Home Mortgage Disclosure Act (HMDA) data, OneWest Bank made very few mortgage loans to borrowers and communities of color. Its home loans to borrowers and communities of color are low in absolute terms, low compared to its peer banks, and low when compared to what one would expect, given the size of the Asian, African American, and Latino populations in California.

OneWest Mortgage Lending in 2015

mortgage-lending-in-2015-crc

3) OneWest REO Homes Better Maintained in White Neighborhoods: 

Fair Housing Advocates of Northern California investigated how well OneWest Bank maintains and markets homes after foreclosing on the underlying mortgage- otherwise known as Real Estate Owned (REO) homes. FHANC looked at OneWest REOs in Contra Costa and Solano Counties from April 2014 to May 2016, and found that properties in White communities were generally well maintained and well marketed with manicured lawns, securely locked doors and windows, and attractive, professional, “for sale” signs posted out front. This was not the case for the majority of REOs in communities of color where REO properties were more likely to have trash strewn about the premises, overgrown grass, shrubbery, and weeds, and boarded or broken doors and windows. OneWest REOs in communities of color appear abandoned, blighted, and unappealing to potential homeowners, even though they are located in stable neighborhoods with surrounding homes that are well-maintained.

FHANC found the following patterns based upon its investigation of sixteen REO properties owned by OneWest in Solano and Contra Costa Counties:

  • 100.0% of the REO properties in communities of color had 5 or more maintenance or marketing deficiencies, while only 33.3% of the REO properties in predominantly White communities had 5 or more deficiencies.
  • 53.8% of the REO properties in communities of color had 10 or more maintenance or marketing deficiencies, while none of the REO properties in predominantly White communities had 10 or more deficiencies.

REO properties in communities of color were far more likely to have certain types of deficiencies or problems than REO properties in predominantly White communities.  Complainant FHANC found significant racial disparities in the majority of the objective factors it measured, including the following:

  • 61.5% of the REO properties in communities of color had substantial amounts of trash on the premises, while none of the REO properties in predominantly White communities had the same problem.
  • 61.5% of the REO properties in communities of color had unsecured or broken doors, while none of the REO properties in predominantly White communities had the same problem.
  • 61.5% of the REO properties in communities of color had a damaged fence, while none of the REO properties in predominantly White communities had the same problem.
  • 61.5% of the REO properties in communities of color had no professional “for sale” sign marketing the home, while none of the REO properties in predominantly White communities had the same problem.
  • 53.8% of the REO properties in communities of color had damaged siding, while none of the REO properties in predominantly White communities had the same problem.

bay-area-map-of-onewest-reos

The complaint can be downloaded here, and a supplemental narrative is available here.

Pictures are available at these links

Picture of Graph comparing OneWest lending record in communities of color vs. foreclosures. (Fact sheet explaining methodology for graph)

Map of OneWest branches in 2015, in MSA with minority percent greater than MSA average.

Map of OneWest lending in 2014 in Majority Asian American, African American, and Latino communities.

Map of OneWest REOs in the Bay Area.

Map of OneWest foreclosures in Los Angeles area as compared to majority minority zip codes. Note: 68% of OneWest’s foreclosures from April 2009 to April 2015 occurred in zip codes where non-white residents represented a majority of the population in the 2010 Census.

Additional foreclosures maps are available here.

CIT Group’s Delayed 10-Q Contains Important Information

Earlier today, CIT Group filed its delayed 10-Q form.  CRC is still reviewing it, but in a quick scan, here’s 6 important points:

1) Investigation ongoing: The HUD Office of Inspector General investigation into Financial Freedom and reverse mortgage servicing appears to be ongoing.

2) How many foreclosures? CIT reports over $790 million of loans in foreclosure as of June 30, 2016 (though doesn’t note how many homes are represented in that figure- CRC purchased data to determine that OneWest had foreclosed on more than 36,000 California households).

3) Reserves: As CIT Group disclosed earlier, it was reserving an additional $250 million for the Financial Freedom problems.  In the 10-Q, CIT reports:  “The Company continues to cooperate with the investigation and has begun discussions with the HUD OIG regarding the potential resolution of the matter….”

4) Material Weaknesses: The material weakness issue is also discussed in more detail here:

In connection with the preparation of the Company’s financial statements for the year ended December 31, 2015, the Company identified errors in the estimation process of the HECM Interest Curtailment Reserve that resulted in a measurement period adjustment.
Following the identification of the errors, management determined that a material weakness existed in the acquired business’s internal control over financial reporting related to the HECM Interest Curtailment Reserve. Specifically, controls were not adequately designed and maintained to ensure the key judgments and assumptions developed from loan file reviews or other historical experience are accurately determined, valid and authorized, the data used in the estimation process is complete and accurate, and the assumptions, judgments, and methodology continue to be appropriate. This control deficiency could result in misstatements of the HECM Interest Curtailment Reserve that could result in a material misstatement of the consolidated financial statements that would not be prevented or detected.
5) When will material weakness be fixed?   A good question.  Not as of September 30, 2016, according to CIT:
Though the Company began to implement its remediation plan and improvements have been made in the processes in 2016, management does not expect that this material weakness will be fully remediated as of September 30, 2016. Management believes that the new or enhanced controls, when fully implemented and when tested for a sufficient period of time, will remediate the material weakness However, the Company cannot provide any assurance that these remediation efforts will be successful.

6) Federal Reserve Qualified Objection: CIT Group receiving a “qualified objection” from the Federal Reserve is also cited in the 10-Q:

CIT submitted its first CCAR capital plan to the Federal Reserve in April 2016. As this filing was a private submission, the FRB did not publish its findings but informed CIT that we received a qualitative objection to the plan. While we have not yet received the detailed feedback, we have begun our remediation efforts. In providing us with feedback the Federal Reserve did approve the continuation of our dividend and share repurchases of approximately $140 million, consistent with 2015

You can access CIT Group’s 10-Q form here.

OneWest Bank and Financial Freedom Have Foreclosed on 16,220 Reverse Mortgages since 2009

Just how many seniors and their families have been foreclosed on because of a reverse mortgage serviced by OneWest Bank?

New data (see fact sheet here) that CRC obtained from HUD, indicates that Financial Freedom/CIT Group’s share of reverse mortgage foreclosures (39%) since April 2009 is more than two times greater than the company’s estimated market share (17%).

Kevin Stein, associate director at the California Reinvestment Coalition, comments:

“CRC was contacted by a number of widowed homeowners and other heirs who shared disturbing stories about Financial Freedom. Using a FOIA request, we asked Financial Freedom’s primary regulator, HUD, about the total number of foreclosures it had completed, and the number of complaints HUD had received against Financial Freedom.”

Stein adds: “The data HUD provided is a red flag that something is amiss at Financial Freedom. While the company services an estimated 17% of the reverse mortgage market, data from HUD indicates that Financial Freedom was responsible for 39% of the 41,237 HECM reverse mortgage foreclosures that occurred since April 2009. This builds on the troubling consumer stories shared with us about Financial Freedom and CIT Group disclosing it had received subpoenas about Financial Freedom from HUD’s OIG.”

“This newly uncovered data about Financial Freedom’s outsized role in HECM foreclosures is troubling, and suggests the need for a thorough and transparent investigation,” comments Maeve Elise Brown, executive director at Housing and Economic Rights Advocates.

HUD declined to fully answer CRC’s FOIA request, which also asked for other information, including the number of complaints made against Financial Freedom, because HUD estimated it would take 120 years for the regulator to compile the information.

Stein comments: “It’s deeply concerning from a consumer protection standpoint when the main regulator for an industry tells you that because of their outdated technology, it will take them 120 years to compile complaint data about one of the companies they’re supposed be regulating. If HUD lacks the ability to systematically access, analyze, and respond to consumer complaint data, how can it effectively regulate this industry, and individual companies? This is important information for identifying problematic practices and bad actors. In comparison, anybody with an internet connection can use the CFPB’s complaint database, and the CFPB routinely publishes public reports about the complaints it receives.”

How Does CIT Group Interact with American Seniors? By Foreclosure, Mostly

While the opportunity to be a spokesperson for a reverse mortgage company may be appealing to failed presidential candidates and Hollywood actors, the loans can have very real, very dangerous consequences for seniors and their family members.

A recent case in Minnesota illustrates this problem- and how a subsidiary of CIT Group, Financial Freedom, is playing an outsized role in foreclosing on seniors.  The story below cites CRC research finding that Financial Freedom has been responsible for 39% of reverse mortgage foreclosures since 2009- despite only servicing an estimated 17% of the market.

Fox 9: Commerce Commissioner calls ‘widow foreclosures’ a ticking time bomb (May 2016)

Financial Freedom foreclosing on Minnesota Widow