OneWest Foreclosure Record Questioned By Advocates as Part of Too Big To Fail Bank Merger with CIT Group

OneWest Foreclosures

Photo credit: Walt Mancin/Pasadena Star-News, featured in BusinessWeek article: From IndyMac to OneWest: Steven Mnuchin’s Big Score

As part of a five-day awareness campaign about the potential impacts of a new, Too Big To Fail bank merger, The California Reinvestment Coalition  raised questions today about OneWest’s track record with distressed homeowners.  OneWest is the name given to the former IndyMac bank, which made toxic mortgages that eventually caused the bank’s collapse.

The FDIC granted the investors who bought IndyMac Bank  a Shared Loss Agreement as part of the purchase.  The Shared Loss agreement obligates OneWest to work with homeowners to avoid foreclosure where possible in exchange for the FDIC committing to cover losses on soured mortgages once certain thresholds were reached.

Now advocates are asking regulators to investigate whether OneWest bank complied with this stipulation of the loss share agreement.

Kevin Stein, associate director of CRC, suggests the regulators take a closer look at OneWest’s foreclosure record: “Thousands of seniors and other homeowners have been hurt by OneWest, and counselors throughout California have rated it as one of the worst servicers in the state. This merger is an opportunity for regulators to review the bank’s record, audit their practices, and ensure that additional homeowners weren’t harmed by practices inconsistent with their loss share commitments.”

Daniel Rodriguez, director of the community wealth department at East LA Community Corporation explains: “Regulators missed their opportunity to prevent banks like IndyMac from making predatory mortgages, and communities throughout Los Angeles were destabilized as a result. The regulators have an important opportunity with this merger to protect homeowners from further preventable foreclosures.”

On Day Three, CRC is asking regulators the following questions:

  1. Do the regulators believe the 35,000 foreclosures by OneWest Bank aligns with the bank’s obligations to modify mortgages whenever feasible as part of the FDIC loss-share agreement?
  2. Given OneWest’s checkered foreclosure history, will the FDIC commit to an outside audit of the bank’s loss mitigation practices before considering whether or not to let the benefits of the shared loss agreement transfer to CIT?
  3. Will the CFPB and OCC audit Financial Freedom, a subsidiary of OneWest Bank, which has been the target of numerous complaints for how it treats widows and other surviving spouses after the death of a loved one? Financial Freedom does not meaningfully allow for surviving spouses not listed on the loan to remain in the home. According to Realtytrac data, it has foreclosed on over 2,200 homeowners in California since OneWest Bank took over.
  4. Are regulators aware of the cases below and others filed, and will this impact the regulator’s possible approval of this merger?
  • Earlier this year a federal court unsealed a False Claims Act complaint against OWB alleging that OWB routinely violated the HAMP program and FHA loss mitigation rules. In United States ex rel Fisher vs. OneWest Bank FSB, the complaint also alleged that OWB “almost always” added new debt to the borrower’s loan balance.
  • In 2013, a San Luis Obispo couple received a million dollar plus settlement from OWB for foreclosing on them while they believed they were negotiating for a loan modification.
  • What other cases have been filed against OneWest and are the regulators considering these as part of their decision making process as to whether OneWest has been meeting community credit needs, and whether this merger will provide a public benefit?

The bank regulators who are reviewing this merger all urge distressed homeowners to work with housing counselors from HUD-certified agencies. These same counselors suggest that OneWest Bank has been incredibly difficult, if not impossible, working with housing counselors in helping people to avoid foreclosure.

Do regulators believe the same approach to homeowners and housing counselors will continue if OneWest is merged with CIT Group? If not, why do regulators believe the bank will change its behavior?

Counselor comments:

“IndyMac. The average processing time is 12 months. They continually request updated documents and state that they never received docs. It’s so frustrating. Even when you escalate the file the same results occur, having to update docs continually for months on end.” (2011)

“Indymac: Their ability to receive documents (unless it is online) is atrocious. They seemingly are always missing docs that are already there. Their online portal is limited in data transfer capacity. Some of their loans are insured, giving them no motive to modify.”(2012)

“Indymac has the worst performance in terms of foreclosure prevention. Very difficult to obtain any assistance. We had a client that was a victim of dual tracking and had their home foreclosed on.”(2012)

Tomorrow’s questions for regulators will focus on government subsidies for the banks.

Additional Context:

Since the start of the foreclosure crisis, the California Reinvestment Coalition has conducted ten surveys of California housing counselors and their experiences in helping homeowners avoid foreclosure. A sampling of the results related to OneWest are included below, most surveys have between 60-90 responses.

In a July 2010 survey, thirty housing counselors cited OneWest Bank (OWB) as the worst offender for not offering affordable loan modifications, more than all fifteen of the other servicers surveyed. Later that year, only two servicers received more votes than OWB from housing counselors for being the most difficult servicer to work with in trying to help homeowners avoid foreclosure.

In June of 2011, 50% of responding counselors rated OWB as “terrible,” a higher percentage than for all other eleven servicers considered.

In a February 2012 survey, 95% of responding counselors said OWB was “terrible” or “bad”, the second worst rating of all servicers considered.That same survey year, OWB was voted second “worst servicer.”

CRC’s detailed letter to the Federal Reserve Bank of New York includes a preliminary analysis of the merger and a long list of concerns and unanswered questions about the proposed merger, including the loss-share agreement.

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