Steve Mnuchin oversaw OneWest during the time that the government said it got FHA money it didn’t qualify for.
The reverse mortgage subsidiary of OneWest, the bank founded and formerly run by Treasury Secretary Steve Mnuchin that was later bought by CIT Group, agreed to an $89 million settlement with the United States on Tuesday over claims that it defrauded a government program out of money it didn’t qualify for.
Financial Freedom, the reverse mortgage unit, allegedly got mortgage insurance payments from the Federal Housing Administration between March 2011 and August 2016 despite failing to meet deadlines and other requirements.
Although the settlement doesn’t amount to the unit admitting to wrongdoing, government officials noted that it took financial responsibility. “Today’s settlement agreement resolves allegations that this lender failed to comply with FHA servicing requirements and sought to receive financial gains that it was not legally entitled to,” Department of Housing and Urban Development (HUD) Inspector General David A. Montoya said in a statement.
Mnuchin founded OneWest in 2009 out of the remnants of failed mortgage lender IndyMac, which he bought with some fellow Goldman Sachs bankers. A number of complaints of illegal and abusive behavior have been lodged against the bank, but the reverse mortgage arm has come under particular scrutiny. These mortgages allow mostly elderly homeowners to borrow against the value of their homes, but Financial Freedom has foreclosed on at least 16,200 of these borrowers since 2009. That means it’s made up 40 percent of all foreclosures on reverse mortgages despite issuing just 17 percent of these loans.
One such homeowner was Rex Schaffer, who took out a home equity loan on the house he and his wife had owned for nearly 50 years. When they had trouble making the payments, they qualified for three different government programs to modify the loan and make it more affordable, but he says OneWest never changed the terms. Their house was sold a day after Schaffer was finally offered a 60-day extension of the sale by a bank vice president.
Another was 92-year-old Lynn Drysdale. Financial Freedom went after her for failure to maintain insurance for a short period of time. She sent them a check for what she owed, but it was 30 cents short; when it sent her a bill for the remaining 30 cents, she misread it and sent a check for 3 cents. The lender then foreclosed on her based on the remaining 27-cent balance.
Financial Freedom is still under intense scrutiny, even after the settlement. In its most recent SEC filing, it disclosed that New York Attorney General Eric Schneiderman has subpoenaed documents. The unit is also under investigation by HUD’s Inspector General.
OneWest has been accused of illegally redlining under Mnuchin’s tenure by issuing few mortgages to people of color, opening few branches in communities of color, and maintaining foreclosed properties better in white areas than neighborhoods of color, and HUD is investigating the complaints. A memo prepared by California’s attorney general’s office documented evidence that the bank broke the law by illegally backdating documents to speed up foreclosures, making false statements, and making bids at foreclosure auctions it didn’t have the authority to make, although the attorney general at the time declined to pursue a case.
President Trump promised to “drain the swamp” during his campaign by cleansing the government of vested business interests and making it more transparent. But as treasury secretary, Mnuchin is now in a position to help him “dismantle” financial reforms put in place after the mortgage crisis that are meant to ensure the same bad behavior can’t happen again.
And given that Mnuchin left OneWest in 2015, Tuesday’s settlement extends to practices after his tenure. It indicates that the illegally gotten insurance payments continued under the leadership of Joseph Otting, who took over as CEO of OneWest in 2010. Otting himself is rumored to be Trump’s nominee to be the next comptroller of the currency, a regulator that oversees the country’s banks and can take action against those that don’t comply with rules and laws.
Bank previously run by Trump’s treasury secretary pays big fine for defrauding the government was originally published in ThinkProgress on Medium, where people are continuing the conversation by highlighting and responding to this story.