Long after leaving the reverse mortgage business, Bank of America is back on the landscape — now with an objection to Reverse Mortgage Solutions’ sale proceedings.
The company, which once originated as many as 9,000 reverse mortgage loans per year, has filed an official objection in the Bankruptcy Court for the Southern District of New York to the sale of Reverse Mortgage Solutions (RMS) by its parent company, Ditech Holding Corporation. This is according to court documents obtained by RMD, and as first reported by Bloomberg Law.
BofA’s objection to the sale of the reverse mortgage servicer stems from a servicing agreement it holds with RMS, and the possibility of a lapse in servicing that could result from a sale of the company.
With Ditech’s sale agreement not specifying a subservicer for the loans currently serviced by RMS, this presents two concerns: First, it wishes to ensure that the sale of RMS to a new parent company will not interfere with its own right to pursue outstanding debts that Ditech may have. Second, BofA is concerned that the sale of RMS will disrupt loans currently being serviced, placing servicing obligations on Bank of America that the company cannot meet.
If Ditech intends to disrupt any rights that holders of its debt would have to future collection, the company has no legal basis under the law to accomplish this, the complaint reads.
In its second and more robust concern, Bank of America contends that the pending sale of RMS to Washington, D.C.-based Mortgage Assets Management, LLC (MAM) “threatens to abandon” existing elderly reverse mortgage borrowers being serviced by RMS pursuant to a subservicing agreement with Bank of America. BofA is no longer able to service the portfolio, the company contends, and RMS’s role as the point of contact and servicer for borrowers and their heirs has been critical.
BofA notes that under its agreement with RMS, the servicer must provide substantial lead time for any transfer of servicing. The sale of RMS to MAM complicates this, however, since that lead time cannot be provided under the sale terms, BofA contends.
“That outcome is untenable,” the objection reads. “Even if [Ditech] assumes [the existing subservicing] agreement, it is unclear how they could successfully perform under [that] agreement when the reverse mortgage servicing business will have been sold to Mortgage Assets Management, LLC.”
‘Abandoning’ current borrowers serviced by RMS
Ditech should not be allowed to engage in this sale under these terms without “making an acceptable arrangement for a replacement subservicer,” or without providing Bank of America enough time to facilitate an alternative arrangement of some kind, the objection reads.
“In short, the [planned sale] improperly abandons this protected class of reverse mortgage borrowers, precluding [Ditech] from satisfying either the standard for rejection or the standard of providing adequate assurances of future performance for assumption,” Bank of America’s counsel says.
The filing also states that Mortgage Assets Management has advised Bank of America that it plans to submit its own proposal for a new contract with terms that are still to be determined in order to ensure that these borrowers continue to be serviced, but Bank of America has yet to receive the new proposal from RMS’ reported buyer.
On the hook
If enough time passes where the sale takes place but no new agreement is reached, existing borrowers are at risk of not having their loans serviced or their draw requests not being funded, BofA’s counsel says in its objection. This lapse in servicing could potentially open Bank of America up to legal action by the affected borrowers, since it is the mortgagee of record on some of the loans RMS services.
Bank of America also states that it is seeking the intervention of the bankruptcy court in the event that a consensual agreement is not reached.
“[Bank of America] would prefer that [MAM] and [Ditech] take the steps necessary to resolve this Objection consensually,” the filing reads. “If they do not, [Bank of America] seeks this Court’s intervention to preserve [BofA]’s rights of setoff and recoupment and to prevent Debtors from abruptly abandoning the [subservicing agreement] without making arrangements for the affected borrowers.”
Bank of America exited the reverse mortgage business in 2011, at which point the company engaged with other entities, including RMS, to fulfill the servicing of its originated loans. MAM was named as the successful bidder for RMS earlier this month, an asset that was put up for auction on June 5. In May, Ditech was officially deregistered from the New York Stock Exchange following its second bankruptcy.
In 2018, Ditech emerged from its first bankruptcy filing after having previously done business under the name Walter Investment Management Corporation. Walter acquired Reverse Mortgage Solutions in 2012 and in 2017, Walter decided to stop originating Home Equity Conversion Mortgages (HECMs). RMS then turned to servicing only and closed its retail channel.