Following a partially granted Freedom of Information Act (FOIA) request issued Wednesday by the Department of Housing and Urban Development, a California-based non-profit group is now calling for a moratorium on any additional reverse mortgage foreclosures by CIT Group, Inc. (NYSE: CIT) and its subsidiary, Financial Freedom.
The call for a moratorium is based in part on new data that the California Reinvestment Coalition (CRC) obtained from HUD, which indicates that Financial Freedom/CIT Group’s share of reverse mortgage foreclosures since April 2009 is more than twice as much as the company’s market share.
OneWest Bank acquired Financial Freedom Senior Funding Corporation as part of the acquisition of the now-defunct IndyMac in 2009. In March 2011, OneWest announced the shuttering of Financial Freedom’s reverse mortgage origination business, citing the regulatory environment and the desire to focus on the bank’s core businesses as its primary reasons.
Although Financial Freedom has not originated any new reverse mortgage loans since May 2011, the company’s servicing portfolio is of “significant size” and will take a number of years to wind down, Fitch Ratings stated in a 2013 analysis, which revised its outlook from Positive to Negative.
As of March 31, 2015, Financial Freedom’s servicing portfolio consisted of 104,050 loans with an unpaid principal balance of approximately $20.6 billion, according to a December 2015 Fitch Ratings report.
The ownership of Financial Freedom changed again last August, when CIT Group completed its $3.4 billion acquisition of IMB Holdco LLC, the parent company of OneWest Bank.
Since the merger was announced, the California Reinvestment Coalition says it has heard from a number of widows and other heirs about their experiences with Financial Freedom reverse mortgages and foreclosures.
Using a FOIA request, CRC 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.
“The data HUD provided is a red flag that something is amiss at Financial Freedom,” said Kevin Stein, associate director at the CRC, in a written statement.
While the company services an estimated 17% of the reverse mortgage market, Stein noted, data from HUD indicates that Financial Freedom was responsible for 39% of the 41,237 HECM foreclosures that occurred since April 2009.
The data is based on information disclosed by HUD in the FOIA request, which revealed that Financial Freedom was responsible for at least 16,220 foreclosures.
“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,” said Maeve Elise Brown, executive director at Housing and Economic Rights Advocates, a Calif.-based not-for-profit legal service and advocacy organization.
HUD initially declined CRC’s request for a fee waiver on the FOIA request. The organization appealed, and then HUD declined that appeal, citing the “ephemeral” nature of the appeal.
In response, CRC filed a lawsuit against HUD last October, claiming the government agency improperly denied the fee waiver request. HUD later agreed to provide the waiver and provide a response to CRC’s amended FOIA request. The response, however, was limited.
The FOIA request asked for data about the number of complaints filed against Financial Freedom; the number of foreclosures the company had conducted since being purchased by OneWest, as well as the number of “widow foreclosures” nationally; and information about HUD’s process for designing a new policy to respond to “widow foreclosures” on reverse mortgages.
In its response, HUD told CRC that it could not supply all of the information requested, including complaint data about Financial Freedom because, “it will require a dedicated full-time person approximately 120 years” for the regulator to compile the information.
“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 to be regulating,” Stein said.
During the third and fourth quarters of 2015, HUD’s Office of Inspector General served subpoenas to CIT Group regarding HECM loans. The subpoenas requested documents and other information related to the servicing of HECMs and the curtailment of interest payments on HECM loans.
In the company’s recent 10-K filing for the full-year of 2015, CIT Group stated that it is “responding to the subpoenas and does not have sufficient information to make an assessment of the outcome or the impact of the HUD OIG investigation.”
Based on its findings as a result of the FOIA request, CRC is now calling on HUD to impose a moratorium on CIT Group/Financial Freedom foreclosures on additional HECM households until several conditions are met.
First, CRC is pressing HUD to force Financial Freedom to provide a plausible expiation to HUD, and to the public, as to why its share of foreclosures is more than twice its estimated reverse mortgage market share.
Second, CRC calls for HUD’s Office of Inspector General to share with the public and with the Office of the Comptroller of the Currency—CIT Group’s primary regulator—more information about its investigation of Financial Freedom.
Third, the non-profit wants HUD to find a way to identify the number, nature and disposition of consumer complaints it has received against Financial Freedom since the company was purchased in 2009.
“As the primary regulator for this industry, it is inexcusable that HUD does not have access to data about consumer complaints made agains the companies and industries it is supposed to be regulating,” CRC stated.
View a Fact Sheet on CRC’s FOIA request to HUD.
Written by Jason Oliva