Treasury Secretary Steve Mnuchin’s bank dramatically ramped up its foreclosures of homes owned by senior citizens in the months before he joined President Donald Trump’s administration, according to government data newly released under the Freedom of Information Act.
The revelations from the U.S. Department of Housing and Urban Development come as the agency’s auditors released a new report showing the insurance fund for taxpayer-backed mortgages has been hemorrhaging thanks to foreclosures on reverse mortgages to the elderly. The losses, the report found, were about $14.2 billion.
“It’s absolutely outrageous and completely wrong,” said Julia Weick, an 87-year-old retired secretary who took out an adjustable rate, reverse mortgage on her Maui home. The government-backed loans allow Americans 62 and older to take equity out of their homes.
Weick is suing Financial Freedom Senior Funding over a foreclosure that started with a dispute over which hurricane insurance Weick needed to buy – and an unpaid bill for it. The dispute began in 2015, when Mnuchin headed Financial Freedom’s parent company. The foreclosure followed last May, when he had stepped down but was still a board member and major shareholder. Weick continues to fight the bank in court.
The data was requested by two nonprofit groups, the California Reinvestment Coalition and Jacksonville Area Legal Aid. It showed Financial Freedom Senior Funding foreclosed on 6,990 homes between April and December 2016, an average of 777 per month. That compared to an average of 193 foreclosures per month over the previous seven years.
Financial Freedom was a division of the Mnuchin-run OneWest Bank, which merged with the CIT Group in 2015. Mnuchin stayed on, serving on the company’s board of directors until Trump appointed him to head the U.S. Department of the Treasury last December.
In May, the company paid $89 million to settle claims brought by the Department of Justice that it had bilked taxpayers out of mortgage insurance through fraudulent foreclosures.
Reveal from The Center for Investigative Reporting attempted to contact Mnuchin through the Treasury Department’s press office but received no response by publication time.
Asked to comment on its escalating number of foreclosures and the weakened state of the government insurance fund, CIT spokeswoman Gina Proia provided this statement via email: “We service reverse mortgage loans in accordance with HUD guidelines and when there are changes to those guidelines, we adapt our process to align with the requirements.”
After being sworn in as treasury secretary, Mnuchin sold his stock in the company, taking in at least $38 million – and perhaps as much as $162 million – according to documents on file with the Office of Government Ethics. He also received $11 million in severance.
HUD spokesman Brian Sullivan said the auditor’s report showed the number of reverse-mortgage foreclosures was putting financial pressure on the Federal Housing Administration’s insurance fund. That trend was in turn leading to higher insurance fees on all FHA mortgages, including the agency’s flagship program that helps working-class, first-time homebuyers.
“This smaller reverse-mortgage program is putting an economic drain on the entire fund,” he said. Mortgages for the elderly, Sullivan said, are essentially “being subsidized by younger borrowers just starting out in homeownership. There are fairness questions and risk questions.”
Nevertheless, Sullivan said he doubted that there had actually been a spike in foreclosures last year and accused the community groups who obtained the data of “mixing apples and oranges” in their analysis. CIT, however, did not dispute the figures.
The groups compared data they received through FOIA last year, which showed 16,220 foreclosures by Financial Freedom between April 2009 and April 2016, with newly released data that covered April 2009 to December 2016. It showed 23,210 foreclosures. The difference between the two was 6,990 in nine months, or an average of 777 a month.
“It doesn’t seem like they know what is behind the huge increase in foreclosures,” Kevin Stein, deputy director of the California Reinvestment Coalition said of HUD. “This is concerning as they are the regulator.”
Sullivan also argued that there were few cases like Weick’s – where a foreclosure occurred because of a dispute over insurance or property tax. In nearly all cases, he said, reverse-mortgage foreclosures took place because the borrower died.
But Stein, of the California Reinvestment Coalition, doesn’t buy that explanation.
“This flies in the face of attorneys and advocates who see people being foreclosed on,” he said, “and it runs counter to HUD’s own data showing 90,000 borrowers were behind on taxes or insurance this year.”
And, Stein added, HUD’s pushback failed to consider cases where a surviving spouse or family member sought to purchase the home after the borrower died, a right that is protected by the law that governs reverse mortgages.
Meanwhile, the investment firm that bought Financial Freedom as part of its merger with Mnuchin’s OneWest Bank is moving on from the reverse-mortgage business.
In October, CIT announced it was selling Financial Freedom for an undisclosed sum to an undisclosed buyer. Contacted for this story, Proia, the CIT spokeswoman, declined to elaborate. According to a company press release, the deal is likely to be completed in the second quarter of 2018.