Financial Freedom settles HECM violation allegations
Reverse mortgage lender Financial Freedom has agreed to pay $89 million to settle False Claims Act allegations involving unearned interest payments it received from the Federal Housing Administration.
Financial Freedom is a subsidiary of OneWest Bank. Before the financial crisis OneWest had been IndyMac, which failed and was purchased in 2009 by future Treasury Secretary Steven Mnuchin. It was sold to CIT Group in 2015.
Financial Freedom had filed insurance claims between March 31, 2011 and Aug. 31, 2016 on Home Equity Conversion Mortgages seeking interest payments.
When HECM loans become due, FHA will reimburse lenders if they are unable to recoup the full amount owed, but filing deadlines must be met.
The Department of Justice alleged that Financial Freedom failed to meet FHA deadlines regarding property appraisal, claim submission and pursuit of foreclosure proceedings and should not have received the interest payments.
Sandra Jolley, a consultant for the estates of HECM borrowers, filed a whistleblower notification under the Financial Institution Reform, Recovery and Enforcement Act. She will get $1.6 million of the settlement as a result.
"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. We are pleased that Financial Freedom agreed to accept financial responsibility for these failures," said Stephen Muldrow, acting U.S. attorney for the Middle District of Florida, in a press release.
"The settlement is within the company's existing reserves and includes interest to be reimbursed to HUD," according to a CIT filing with the Securities and Exchange Commission.
Former OneWest CEO Joseph Otting is under consideration to head the Office of the Comptroller of the Currency.
"Joseph Otting was the CEO of Financial Freedom's parent company (OneWest Bank) for most of the time when these practices are alleged to have occurred. Mr. Otting is also rumored as a nominee for the next Comptroller of the Currency. While accountability for bad behavior is good, this settlement is another example of Mr. Otting and his former boss, Steve Mnuchin, ignoring rules and cutting corners during their time at OneWest Bank," said Paulina Gonzalez, executive director of the California Reinvestment Coalition, in a statement.