Editor’s note: see correction below.
Financial Freedom will pay more than $89 million to settle a Department of Housing and Urban Development investigation into its reverse mortgage servicing practices, the agency announced in a release Tuesday.
HUD’s Office of the Inspector General had alleged that Financial Freedom submitted multiple requests for insurance reimbursements to the Federal Housing Administration the company was not entitled to receive.
Instead, the government said, the interest payments accrued only because Financial Freedom missed various government-mandated deadlines regarding foreclosure proceedings, appraisals, and HUD claims. In doing so, HUD said, the Austin, Texas-based servicer violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
“Those deadlines are designed to protect the government’s collateral and stop the unnecessary loss of government funds and resources,” acting assistant attorney general Chad Readler said in the statement.
The government’s allegations apply to loans serviced between March 31, 2011 and August 31, 2016. Sandra Jolley, a consultant who advocates on behalf of Home Equity Conversion Mortgage borrowers, and who will also receive $1.6 million as part of the settlement, HUD said.
“HECM servicers must be held accountable for failing to adhere to FHA requirements that are designed to ensure the continued viability of the HECM program,” acting U.S. attorney Stephen Muldrow said in the statement. “We are pleased that Financial Freedom agreed to accept financial responsibility for these failures.”
In a release issued by the Employment Law Group, the law firm that represented Jolley in her complaint against Financial Freedom, the consumer advocate applauded the decision.
“Today’s settlement is a long-overdue step toward accountability at Financial Freedom,” Jolley said.
Financial Freedom currently serves as a legacy subsidiary of CIT Group, which has taken a significant financial hit on its HECM operations: As RMD reported last July, the Livingston, N.J.-based CIT saw profits fall from $115.3 million during the second quarter of 2015 to just $14.1 million during the same quarter in 2016, which CIT blamed squarely on its troubled reverse mortgage portfolio.
“We remain committed to exiting from this business,” CIT executives said at the time.
CIT acquired Financial Freedom as part of a $3.4 billion deal to purchase its corporate parent, OneWest Bank, in late 2015. OneWest, which itself obtained the reverse servicer from IndyMac in 2009, shuttered all of Financial Freedom’s HECM origination operations in mid-2011, laying off 65 employees in the process.
The Employment Law Group’s statement wryly notes that the $89 million in settlement cash will technically come under the purview of Treasury Secretary Steven Mnuchin, whose tenure as chairman of OneWest pulled Financial Freedom’s foreclosure track record into the spotlight during his nomination and confirmation process.
Correction: A previous version of this article stated in error that borrowers were improperly charged interest. In fact, the mortgagees (or the lenders) on the relevant reverse mortgage loans serviced by Financial Freedom allegedly obtained additional interest that they were not entitled to receive. RMD regrets the error.
Written by Alex Spanko