Senate Committee Grills Trump Treasury Pick on Reverse Mortgage Foreclosures

President-elect Donald Trump’s pick for Secretary of the U.S. Treasury, Steve Mnuchin, testified before a United States Senate committee this past week, where he answered for the reverse mortgage business practices of a now-defunct originator that was formerly owned by a company under his control.

Since his nomination to serve as the Treasury Secretary under the Trump Administration, Mnuchin has been the subject of high-profile press coverage due to the foreclosure activity of his former firm, OneWest Bank, and the company’s Financial Freedom reverse mortgage division. OneWest was later acquired in August 2015 by CIT Group Inc. (NYSE: CIT).

During the hearing to consider Mnuchin’s confirmation as Secretary for the U.S. Treasury, several Democratic members of the Senate Committee on Finance focused on the widely reported tactics of OneWest between 2009 and 2014, a period during which the bank foreclosed on more than 35,000 homes, including those belonging to reverse mortgage borrowers.

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“OneWest churned out foreclosures like Chinese factories churned out Trump suits and ties,” said Committee Ranking Member Sen. Ron Wyden (D-OR) during the hearing. “‘Widow foreclosures’ on reverse mortgages—OneWest did more of those than anybody else.”

In 2009, Mnuchin and a group of investors purchased the failed IndyMac Bank from the Federal Deposit Insurance Corporation. As part of the transaction, OneWest also acquired Financial Freedom, which at the time was one of the largest reverse mortgage lenders in the nation.

“My group had nothing to do with the creation of risky loans in the IndyMac loan portfolios,” Mnuchin said during Thursday’s hearing. “When we bought the bank we assumed these loans, which had been originated by the previous management. Some of those individuals had to answer to federal authorities for their bad lending decisions.”

Like many banks at the time during the financial crisis, Mnuchin said IndyMac and Financial Freedom had a large amount of distressed mortgages in their portfolios.

“These legacy loans were included in the IndyMac purchase,” he said. “The responsibility landed on me to clean up the mess others made, but that we inherited.”

A Freedom of Information Act (FOIA) request filed by the California Reinvestment Coalition, a staunch opponent to OneWest’s foreclosure activities against reverse mortgage borrowers, revealed that Financial Freedom’s share of reverse mortgage foreclosures since April 2009 was more than twice as much as the company’s market share.

While Financial Freedom serviced an estimated 17% of the reverse mortgage market, HUD data indicated that the company was responsible for 39% of the more than 41,000 Home Equity Conversion Mortgage foreclosures that occurred between April 2009 and March 2015, according to the FOIA request.

In some cases, homeowners faced foreclosures for being short on their property taxes or homeowner’s insurance payments by less than $1, according to remarks from committee members such as Sen. Bill Nelson (D-FL), who recounted an instance where a Lakeland, Florida, woman was foreclosed on for owing only $0.87.

Despite the small balance, Mnuchin credited the rigidity of HUD regulations for forcing Financial Freedom’s and OneWest’s hand to proceed with foreclosure.

“In 2015, when HUD issued Mortgagee Letter 2015-11, I wrote HUD and asked them to change their policy so we wouldn’t have to foreclose on senior citizens who were behind by a small amount on their taxes and insurance,” Mnuchin said.

“Unfortunately, HUD did not agree and we were forced to foreclose on senior citizens, even if they only owed $1,” he added. “Not complying with these policies would have subjected the bank to penalties and losses from HUD.”

Ultimately, OneWest extended over 100,000 loan modifications to delinquent borrowers in efforts to help homeowners remain in their homes, according to the testimony of Mnuchin, who also stressed that in some cases, the FDIC loan modification program did not work for everyone.

“When the FDIC took over IndyMac, they estimated that more than half of the foreclosures would not meet their test for a loan modification,” he said.

Furthermore, the FDIC demanded numerous policy conditions, according to Mnuchin, which included extending assistance to borrowers by establishing affordable and sustainable payments by boomers, increasing net present value of cash flows to the owner of the loan, and stabilizing housing markets.

“My group had to adhere to servicing agreements which limited our ability to modify loans that could have helped borrowers,” he said.

Opponents, such as the California Reinvestment Coalition, argue that Mnuchin wasn’t telling the whole story during his testimony before the Senate Committee on Finance.

Citing federal data, the non-profit CRC notes that since the start of the Home Affordable Modification Program (HAMP) introduced by the Obama Administration in 2009, OneWest Bank actually denied two-thirds of the homeowners who applied for a loan modification from the bank through HAMP.

Of the one-third of homeowners who managed to get a loan modification offer, more than 70% of those offers extended did not convert into a permanent loan modification, according to a Reuters analysis of HAMP data for the period of 2009-2013.

“Steve Mnuchin’s written testimony and claims he made during the hearing today are riddled with half-truths about what his bank did and didn’t do, and so it’s important to set the record straight,” said CRC Executive Director Paulina Gonzalez, who testified during a separate forum hosted by Senate Democrats last week, which featured testimony from several homeowners foreclosed upon by OneWest and Financial Freedom.

Despite the grilling received at the hands of Senate Democrats during Thursday’s nomination hearing, there is little to suggest that Mnuchin’s nomination to serve as Secretary for the U.S. Department of the Treasury is in any danger.

“Put simply, if the confirmation process focused mainly on the question of a nominee’s qualifications, there would be little, if any, opposition to Mr. Mnuchin’s nomination,” said Senate Finance Committee Chairman Sen. Orrin Hatch (R-Utah) during the Mnuchin nomination hearing.

Written by Jason Oliva

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  • The most important part of this conversation as to our industry is the high percentage of foreclosures that do not result in eviction of the borrowers. Almost all forward mortgage foreclosures result in the eviction of the borrower.

    YET both the article by Dr. Guttentag and Peter Bell missed the most common reason why all reverse mortgage foreclosures occur, failure to comply with the due and payable clause. In fact when has the due and payable clause not been in effect when a reverse mortgage foreclosure has occurred. Is it not the same with forward mortgages as well?

    So the call by Dr. Guttentag to want a different name for foreclosures on reverse mortgage whose original default was due to the death of the last borrower to use the collateral as that person’s personal residence is ridiculous. Foreclosure is a legal process and the basis for the transfer of title is always the same, failure to pay the balance due. Lawsuits over the validity of the foreclosure process normally arises from whether or not 1) the default occurred, 2) the default was timely cured, 3) the foreclosure process was properly followed, and 4) an element of fraud occurred in the foreclosure process.

    What is needed is better reporting from HUD on foreclosures. We need information on the source of the first default that resulted in the foreclosure process. For those who may not be aware of it, there can be several defaults on a loan before foreclosure. For example, a real estate tax was not paid timely, immediately followed by a failure to pay a homeowner’s insurance premium timely, and immediately followed by a failure to pay a flood insurance premium timely

    The foreclosure process can result in short sales, deeds being transferred in lieu of foreclosure, and even short pays. The following is an example of a short pay (not purchase): When an estate AS THE OWNER OF THE HOME pays off the balance due on a HECM for 95% of the appraised value of the home (assuming that is lower than the balance due on the HECM), the result is a short pay, not the purchase of the home as is so wrongly claimed by our industry.

  • My friends and colleagues, I was there from the initial forming of Financial Freedom, through the acquisitions, through all the fiascos that occurred after the acquisitions to the closing of Financial Freedom. I have also been in the reverse mortgage space right up to current day occurrences. People like Sherry Apanay, Joe Morris, Craig Corn and many more of you were there with me as well.

    The real issue here, regardless if you are a Democrat, Republican, Independent or what ever, we need to get on with bringing this country together!

    We must get this cabinet together and stop the stall tactics, this is only hurting the American people, our national security and last but not least, our entire country!

    What is wrong with our politicians, the crazy people in the streets looting, demonstrating and to top it all off, a good share of the people demonstrating don’t even know what they are demonstrating about!

    I have never seen anything like this this in my life time, I remember the smooth transition from Bush to Obama, no interference, no hold up on cabinet members, just a professional smooth transition!

    I love my country as I am sure all of you reading my comment do! I will also speak for us all when I say, all we want is to see our great nation come together, be prosperous again and most of all, united again as one people!

    John A. Smaldone
    http://www.hanover-financial.com

  • We can analyze this all we want. The bottom line is this confirmation hearing was shown nationally on most network and cable channels. It was just another black eye to the struggling Reverse Mortgage business. It was another negative story about Reverse Mortgages to the seniors who were watching and I am sure many were watching. I actually received a call during the hearings to tune in since it was something I might want to watch.

  • CBS news reports: “Senate Democrats have also set up a website soliciting stories from homeowners who were foreclosed upon by the bank Mnuchin took over in the wake of the financial crisis, Indy Mac, now known as OneWest.” See http://www.cbsnews.com/news/4-ways-treasury-pick-mnuchin-differs-from-gop-and-trump/

    Perhaps someone who is familiar with the support of Democrats for the HECM program can explain this continued attack, since even Senator Schumer has all but conceded that Mnuchin is likely to be confirmed anyway.

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