Trump Treasury Pick’s Ex-Firm Subject of New Reverse Mortgage Investigation

New York Attorney General Eric Schneiderman has opened an investigation into the reverse mortgage practices at a company formerly owned by Steven Mnuchin, President-elect Donald Trump’s pick for Secretary of the U.S. Treasury, reports The Wall Street Journal.

Mnuchin, a former Goldman Sachs executive, was the co-founder of OneWest Bank Group LLC, which acquired reverse mortgage lender Financial Freedom in a 2009 purchase from The Federal Deposit Insurance Corporation. In 2011, OneWest announced the company was exiting the reverse mortgage business and shutting down Financial Freedom. OneWest was later sold to CIT Group Inc. (NYSE: CIT) in August 2015 for approximately $3.4 billion in cash and stock.

The N.Y. Attorney General’s Office is currently examining practices related to the servicing of reverse mortgages at Financial Freedom, particularly looking at whether the company employed tactics that pushed senior reverse mortgage borrowers into foreclosure, according to the WSJ report, which cites an unnamed person familiar with the investigation.

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The examination of Financial Freedom dates back to 2012, when Mnuchin was serving as chairman of OneWest. The investigation, according to the WSJ, began in December and was “prompted in part by complaints the attorney general’s office received both before and after Mr. Mnuchin’s nomination by President-elect Donald Trump.”

“We’re sure any ‘investigation’ is about nothing more than politics,” Mnuchin spokesman Barney Keller said in a statement to the WSJ.

Since his nomination, Mnuchin has been in the spotlight for his past affiliations in the reverse mortgage business, particularly landing in the sights of consumer groups who allege that Financial Freedom used questionable reasons to foreclose on reverse mortgage borrowers.

One group, the California Reinvestment Coalition, last week filed a Freedom of Information Act (FOIA) request about the reverse mortgage foreclosures conducted against seniors by Financial Freedom.

The non-profit organization alleges the company foreclosed on seniors due to “non-occupancy” when the senior borrowers lived in their homes secured by the reverse mortgage loan, and that Financial Freedom foreclosed on borrowers who failed to pay property taxes or homeowner’s insurance without giving them an opportunity to pay.

An earlier FOIA request the Coalition received from the Department of Housing and Urban Development (HUD) last year revealed that Financial Freedom/CIT Group’s share of reverse mortgage foreclosures since April 2009 was more than twice as much as the company’s market share.

While the company services as estimated 17% of the reverse mortgage market, according to the FOIA request, data from HUD indicated that Financial Freedom was responsible for 39% of the 41,237 Home Equity Conversion Mortgage foreclosures that occurred from April 2009 to March 2015.

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, stated Fitch Ratings in a 2013 analysis of the company.

The investigation from Attorney General Schneiderman’s office is the latest scrutiny from New York State regulators concerning reverse mortgage servicing.

In August 2016, the New York State Department of Financial Services began an investigation into the reverse mortgage servicing operations at Nationstar Mortgage (NYSE: NSM) and Reverse Mortgage Solutions, Inc., following a story from the New York Post, which revealed a number of consumer complaints about the companies lodged with the NYDFS.

Reverse mortgage reforms were also a subject of New York Governor Andrew Cuomo’s (D) comprehensive plan unveiled earlier this month in efforts to strengthen legislation meant to protect senior homeowners with reverse mortgages.

Written by Jason Oliva

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  • In the days of Seattle Mortgage, if SM turned an application down, Financial Freedom would seem to find a way to approve it. There there was the Southern California mid-level execs at Financial Freedom who were all too eager to have originators selling annuities to their prospects and borrowers.

    According to the June 16th, 2008 edition of the Lubbock Avalanche Journal, “…the current ‘Financial Freedom Senior Funding Corporation’ was originally founded in 1996 and offers reverse mortgages in all 50 states and the District of Columbia. Financial Freedom substantially expanded its business and network of offices through its acquisition in 2000 and 2001 of the reverse mortgage business of Unity Mortgage Corp…. The company was purchased by Lehman Brothers in 2000 and became a subsidiary of Lehman Brothers Bank, F.S.B. in March 2001.” See http://lubbockonline.com/stories/061608/bus_291313620.shtml

    Despite its affiliation with Lehman Brothers, Financial Freedom had some of the loosest origination standards among the largest HECM originators. So it is no surprise to see its endorsements having the highest percentage of foreclosures. So the question is how far reaching will the NY AG take his investigation.

    For those who believe that the good news of recent years have contributed to better days for HECMs (these folks do not seem to be paying attention to the downward slope in the secular stagnation we have witnessed in those very same years), this cannot be welcome news. Although we have weathered much worse problems, it is the magnitude of the problem at Financial Freedom as well as the reputation of Lehman Brothers that could come into play.

    Based on prior results from bad news reported by media in prior years, this particular new wave should not have much impact on seniors; however, our efforts regarding gaining referrals from financial advisors may be in for a turn for the worse. Those involved in the financial services and insurance industries may have a lot of psychological problems with anything that can somehow be associated with Lehman Brothers.

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