Ditech Holdings announced in June that it had entered into an agreement to sell its reverse mortgage business, but now one of its big-named clients is formally objecting to the sale.
Bank of America, which has a reverse mortgage servicing agreement with Ditech subsidiary Reverse Mortgage Solutions, filed a motion in court Thursday objecting to the deal as it currently stands, claiming that it “threatens to abandon the thousands of elderly borrowers” whose reverse mortgages are being serviced by RMS.
Ditech’s current deal has it selling off the stock and assets of RMS to Mortgage Assets Management, a Washington, D.C.-based manager of mortgage servicing rights, in a “stalking horse” agreement, which means that Ditech can abandon the deal and set up an auction if other interested parties come forward.
But according to Bank of America’s objection, the sale does not uphold its agreement with RMS, which stipulates that RMS provide Bank of America with extensive lead time to establish other arrangements for the servicing of its reverse mortgage borrowers should RMS no longer be able to handle the business.
Once an originator of reverse mortgages, Bank of America exited the HECM business in 2011, subsequently selling off the servicing rights of its reverse loans to RMS.
Under that agreement, RMS services thousands of reverse mortgage loans for borrowers with an average age of 81, BofA said.
“For many of these elderly borrowers, their reverse mortgage is their primary source of income. They rely on this income to fund their basic living expenses,” Bank of America stated in its filing. “Any interruption in the servicing of these reverse mortgage loans could have severe consequences for these borrowers.”
The agreement makes RMS the “single point of contact” for these borrowers, BofA said, meaning that the servicer plays a “crucial role” in helping these elderly borrowers manage their loan.
But now, under the stalking horse deal with Mortgage Assets Management, RMS appears to be bailing on that arrangement, and Mortgage Assets has yet to provide details on who will be taking over that chunk of RMS’ business. In fact, the stalking horse arrangement makes no mention of the transfer of RMS’ servicing agreement with BofA.
“It is clear that Debtors now intend to sell the reverse mortgage servicing business, along with the servicing platform and a majority of the current employees, without transferring these borrowers or the associated subservicing agreement to the buyer,” BofA said. “That outcome is untenable.”
According to the filing, BofA was informed that Mortgage Assets Management would be proposing a new contract for the continued servicing of these borrowers, but that deadline has since come and gone and there is no indication of what terms might be included.
“Debtors should not be allowed to walk away from this protected class of borrowers without making an acceptable arrangement for a replacement subservicer or providing [BofA] with sufficient time to make alternative arrangements,” the filing stated.
BofA said it would prefer if RMS and Mortgage Assets Management came to a consensual agreement regarding the transferring of BofA’s business, but in the event that this does not happen, it seeks the court’s intervention.