McDonald said Walter routinely missed deadlines and then falsely claimed it met them in order to maximize FHA compensation. The government eventually took up his case and settled with Walter for $29.6 million. Walter didn’t admit or deny wrongdoing.
McDonald said in his complaint that Financial Freedom was doing the same thing, though he didn’t have any first-hand evidence. Given the size of Financial Freedom’s loan portfolio, which was much greater than Walter’s, he estimated that the overbilling could have amounted to more than $200 million.
Around the time it settled with Walter last year, HUD issued the first of several subpoenas relating to curtailment of interest at Financial Freedom. Then, in February, CIT disclosed that its auditors found a “material weakness in internal controls” at the unit.
That led to the discovery of the $230 million shortfall. As CIT Chief Financial Officer Carol Hayles explained on a conference call, Financial Freedom hadn’t been accurately tracking how much interest it was entitled to from FHA insurance claims and had overestimated how much it would get.
Aggressive Timeline
In a roundabout way, the possibility that Financial Freedom might have been foreclosing too slowly to meet federal deadlines bolsters the case OneWest executives have made in defending their record. At a hearing in California last year, Joseph Otting, OneWest Bank’s CEO at the time, portrayed the lender as merely carrying out the government insurance program’s aggressive timeline.
“The vast majority of criticism of our servicing practices are really criticisms of the regulations,” he said at the hearing. “We share the frustrations of those who criticize the outcomes that are the direct result of HUD requirements.”
That argument doesn’t satisfy critics like Sandy Jolley, who battled Financial Freedom over her parents’ reverse mortgage and later became a consultant to other borrowers.
Financial Freedom seems bent on foreclosing on borrowers as fast as possible, sometimes without justification, Jolley said in an interview. After she tried unsuccessfully in court to void the loan on her mother’s Thousand Oaks, California, home, Financial Freedom in 2010 tried to foreclose by falsely claiming that the mother no longer lived there, Jolley said. At the time, her mother was widowed, in her 80s and suffering from Alzheimer’s disease.
Financial Freedom completed the foreclosure in 2013, Jolley said, after her mother died. CIT declined to comment about the case.
“When you have nowhere to turn, and you are being wrongfully threatened with foreclosure and displacement from your home, that stress can be overwhelming,” Jolley said. “You don’t know what is going to happen to you tomorrow. What are they going to do to you?”
This article was provided by Bloomberg.