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Opinion, commentary, and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
Lending

This is why reverse mortgage servicers need a foreclosure moratoria

Waiting on HUD policy

December 11, 2014

Earlier this week, HousingWire’s blog cited an open letter from a homeowner who spoke to the challenges he’s faced in trying to work with Ocwen Financial Services, a mortgage servicer with a troubled history. As HousingWire readers know, Ocwen was on a buying binge of mortgage servicing rights until the New York Department of Financial Services put the brakes on a deal with Wells Fargo Bank. Apparently, the regulator felt the bank needed to assess if it had the capacity to provide its current customers with competent customer service, let alone take on tens of thousands of new customers, some of whom are in the middle of modifications with their current servicers.

The HousingWire post raises some important questions about the continuing dysfunction homeowners see from their mortgage servicer, the role of the media in exposing these types of practices, and what happens to the homeowners whose horror stories aren’t covered by the media?

A proposed bank merger provides a good context for these questions. OneWest Bank, the former IndyMac, which was the 3rd largest bank failure with a $10 billion+ price tag to the FDIC’s Insurance Fund, is asking bank regulators to let it merge with CIT Group creating a Systemically Important Financial Institution (SIFI). If you haven’t heard of CIT, it has a similar record to IndyMac, having received a $2.3 billion “investment” by the Treasury Department via TARP in 2008. About a year later, CIT filed bankruptcy, meaning the $2.3 billion “investment” became an involuntary “gift” from the US taxpayer, never to be repaid.

Despite the fact that the banks should be under extra scrutiny as they propose merging, OneWest has been foreclosing on senior homeowners whose reverse mortgages are serviced by a OneWest subsidiary, disarmingly named Financial Freedom. In Texas, OneWest started to foreclose on a 103-year-old senior woman because she had allowed her insurance to lapse.  Despite buying her force-placed insurance, OneWest also tried to foreclose on her. Well, they tried until the media reported about it.  Then, magically, the bank filed a motion to dismiss the foreclosure case this week.

In another example, American Banker reported in November on two separate cases of widowed seniors who were also going to be foreclosed on by OneWest. In their cases, their husbands, who were on the reverse mortgages, had passed away, and OneWest was trying to foreclose on their surviving spouses.  A federal judge has ordered HUD to craft a policy to address the problem of widows being foreclosed on when they aren’t listed on the reverse mortgage. But while homeowners wait on HUD, OneWest was moving to foreclose. A more recent update in Mortgage Servicing News suggests that OneWest is no longer moving forward on one of the woman’s cases (at least for now), but it appears the other one (a 73-year-old with severe heart disease) is still in limbo.  Would OneWest have already thrown these seniors out of their homes, absent media attention?

That brings us to our last question: How many other homeowners, including widowed spouses (who are waiting on HUD to write a policy), are facing foreclosure at the hands of OneWest bank? 

We asked HUD for this information, but haven’t yet heard back. 

If their cases aren’t covered by the media, will they lose their homes? 

Why aren’t regulators like HUD or the CFPB asking OneWest for an audit of its foreclosure practices related to senior borrowers, non borrower spouses and heirs? 

The fact that this problem disproportionately affects seniors and women (both protected classes) also raises serious fair housing concerns, which regulators should examine. Until HUD develops a policy on this issue, OneWest and other reverse mortgage servicers should implement a moratorium on foreclosing on surviving spouses.

For every homeowner who has their story covered, there are countless others whose stories won’t be told, especially in the reverse mortgage context wherein a grieving spouse may not think to call their local media as their bank tries to take their home from them. That’s where bank regulators should play an important role in ferreting out bad behavior and holding them accountable.

The Federal Reserve and the Office of the Comptroller of the Currency, the two bank regulators who are reviewing the OneWest/CIT Group merger, have a responsibility to review these issues closely as they examine this proposed merger. Our coalition, along with more than 50 other organizations opposing this merger, are asking the regulators to hold public hearings about this merger in Los Angeles as part of its due diligence in this merger process.

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