Final Civil Action: Financial Freedom, a Division of CIT Bank, N.A., Settled Allegations of Failing To Comply With HUD’s Federal Housing Administration Servicing Requirements for HECM Claims

Date Issued: 
Monday, August 21, 2017
Publication/Report Type: 
Audit Reports
Report Number: 
2017-CF-1804
Program Area(s): 
Single Family Housing
State: 
Texas
Summary: 

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), assisted the U.S. Department of Justice (DOJ), Washington, DC, and the U.S. Attorney’s Office for the Middle District of Florida in a civil investigation of Financial Freedom Acquisition, a division of CIT Bank, N.A.  Financial Freedom was originally owned by IndyMac Bank until its failure in 2008, when the Federal Deposit Insurance Corporation was appointed as conservator.  On March 18, 2009, OneWest Bank, N.A., based in Pasadena, CA, acquired the assets of Financial Freedom.  On August 3, 2015, CIT Group acquired OneWest Bank, including Financial Freedom.  The home equity conversion mortgage (HECM) servicing operations for Financial Freedom were located in Austin, TX.

On May 16, 2017, Financial Freedom entered into a settlement agreement with the Federal Government to pay $68,274,944 to avoid the delay, uncertainty, inconvenience, and expense of lengthy litigation.  Financial Freedom also had paid HUD more than $21,000,000 related to the covered conduct through HUD’s Supplemental Claims system, for a total settlement value of $89,274,944.  The Federal Government alleged that Financial Freedom sought to obtain insurance payments for debenture interest from HUD and did not disclose on the insurance claim forms that the lender was not eligible for such interest payments.  The settlement was neither an admission of liability by Financial Freedom nor a concession by the United States that its claims were not well founded.

As a result of Financial Freedom’s conduct, lenders on relevant HECMs obtained additional debenture interest that they were not entitled to receive.  HUD incurred substantial losses when it paid additional debenture interest on HECM claims on the loans covered by the settlement agreement.  Of the total $89,274,944 settlement, the Federal Housing Administration received $41 million, and the remaining amount was paid to other Federal entities.

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