Attorney General James: “Ditech’s action is an illegal attempt to strip hundreds of homeowners of their legitimate claims and eviscerate New York’s carefully-created foreclosure process. Housing is a right, and we will continue to use every legal tool at our disposal to stand up for homeowners and to protect their rights.”

Attorney General Letitia James has taken action against Ditech Holding Corporation (Ditech) by filing a brief in the United States Bankruptcy Court for the Southern District of New York, opposing the mortgage servicer’s attempted end-run around statutory protections for homeowners.

“Bankruptcy Court should never be used as a tool to unjustly oust New Yorkers from their homes,” said Attorney General Letitia James. “Ditech’s action is an illegal attempt to strip hundreds of homeowners of their legitimate claims and eviscerate New York’s carefully-created foreclosure process. Housing is a right, and we will continue to use every legal tool at our disposal to stand up for homeowners and to protect their rights.”

Ditech currently has more than 880 active foreclosure actions pending across New York State. Homeowners organized the Consumer Creditors Committee to ensure that the courts do not permit the company to sweep their rights under the rug. Homeowners are demanding that their claims and defenses — which include significant money damages — not be extinguished in Bankruptcy Court.

Attorney General James — in support of the Consumer Creditors’ Committee — is filing the objection to ensure that vulnerable homeowners, who were victims of predatory lending and mortgage servicing abuses, including seniors with reverse mortgages, can assert their rights under the protections of New York’s robust judicial foreclosure process.

In addition to filing this motion, the Office of the New York State Attorney General currently has an open investigation into Reverse Mortgage Solutions (RMS), a reverse mortgage servicer that is owned by Ditech.

This past March, Attorney General James took a similar action when a building owner in Manhattan attempted to flout rent regulation laws and displace tenants.

The objection is being handled by Assistant Attorneys General Elena González, Elizabeth M. Lynch, and Sarah Trombley of the Bureau of Consumer Frauds and Protection, under the supervision of Bureau Chief Jane M. Azia, as well as Enid Nagler Stuart, Special Bankruptcy Counsel for the Litigation Bureau.

The Bureau of Consumer Frauds and Protection is overseen by Chief Deputy Attorney General for Economic Justice Christopher D’Angelo, and the Litigation Bureau is overseen by Chief Deputy Attorney for State Counsel Orelia Merchant.

One of Ditech’s Largest Clients claims Ditech’s sale of RMS “threatens to abandon” Elderly Reverse Mortgage Borrowers

Files official objection to the terms of the deal court

Ditech Holdings announced in June that it had entered into an agreement to sell its reverse mortgage business, but now one of its big-named clients is formally objecting to the sale.

Bank of America, which has a reverse mortgage servicing agreement with Ditech subsidiary Reverse Mortgage Solutions, filed a motion in court Thursday objecting to the deal as it currently stands, claiming that it “threatens to abandon the thousands of elderly borrowers” whose reverse mortgages are being serviced by RMS.

Ditech’s current deal has it selling off the stock and assets of RMS to Mortgage Assets Management, a Washington, D.C.-based manager of mortgage servicing rights, in a “stalking horse” agreement, which means that Ditech can abandon the deal and set up an auction if other interested parties come forward.

But according to Bank of America’s objection, the sale does not uphold its agreement with RMS, which stipulates that RMS provide Bank of America with extensive lead time to establish other arrangements for the servicing of its reverse mortgage borrowers should RMS no longer be able to handle the business.

Once an originator of reverse mortgages, Bank of America exited the HECM business in 2011, subsequently selling off the servicing rights of its reverse loans to RMS.

Under that agreement, RMS services thousands of reverse mortgage loans for borrowers with an average age of 81, BofA said.

“For many of these elderly borrowers, their reverse mortgage is their primary source of income. They rely on this income to fund their basic living expenses,” Bank of America stated in its filing. “Any interruption in the servicing of these reverse mortgage loans could have severe consequences for these borrowers.”

The agreement makes RMS the “single point of contact” for these borrowers, BofA said, meaning that the servicer plays a “crucial role” in helping these elderly borrowers manage their loan.

But now, under the stalking horse deal with Mortgage Assets Management, RMS appears to be bailing on that arrangement, and Mortgage Assets has yet to provide details on who will be taking over that chunk of RMS’ business. In fact, the stalking horse arrangement makes no mention of the transfer of RMS’ servicing agreement with BofA.

“It is clear that Debtors now intend to sell the reverse mortgage servicing business, along with the servicing platform and a majority of the current employees, without transferring these borrowers or the associated subservicing agreement to the buyer,” BofA said. “That outcome is untenable.”

According to the filing, BofA was informed that Mortgage Assets Management would be proposing a new contract for the continued servicing of these borrowers, but that deadline has since come and gone and there is no indication of what terms might be included.

“Debtors should not be allowed to walk away from this protected class of borrowers without making an acceptable arrangement for a replacement subservicer or providing [BofA] with sufficient time to make alternative arrangements,” the filing stated.

BofA said it would prefer if RMS and Mortgage Assets Management came to a consensual agreement regarding the transferring of BofA’s business, but in the event that this does not happen, it seeks the court’s intervention.

Credit: HousingWire

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Ditech Tracker

New York Court approves representation for mortgage borrowers in Ditech bankruptcy

Ditech loses motion to dismiss consumer committee

The Bankruptcy Court of the Southern District New York denied Ditech’s motion Friday to dismiss the formation of a consumer committee to protect the interests of mortgage borrowers who have loans with Ditech or its subsidiaries.

The creation of the committee was first approved last month by the U.S. Trustee, a division of the Department of Justice, after a number of advocacy groups filed petitions claiming that many Ditech borrowers, including those who have reverse mortgages with its subsidiary Reverse Mortgage Solutions, were unlikely to be fairly represented in the bankruptcy proceedings.

The representative of some of the borrowers, J. Samuel Tenenbaum of Northwestern’s Complex Civil Litigation and Investor Protection Center, said such a committee was necessary to protect the rights of reverse mortgages borrowers, who are mostly elderly, disabled or financially unstable, and therefore vulnerable.

“There’s a lot of people who could be negatively affected,” Tenenbaum told HousingWire. “We just want to make sure that the bankruptcy does not do anything that negatively impacts consumer rights.”

The Trustee approved of the creation of a five-member consumer committee, but not long after the request was granted, Ditech filed a motion objecting to such a committee, asking that it be disbanded.

Ditech claimed that the Trustee’s move was “arbitrary and capricious” and would have a chilling effect on Ditech’s attempts to sell off portions of its business.

If the court will not disband the committee, Ditech asked that the committee’s scope be limited and its fees and expenses capped at $250,000.

No such luck, the New York Court ruled.

In a motion refuting Ditech’s objection, the committee’s legal counsel – Victor Noskov, Ben Finestone and Susheel Kirpalani at the law firm of Quinn Emanuel Urquhart & Sullivan – reasserted the need for such a committee.

“As noted in many of the requests to appoint a consumer committee, consumer borrowers include some of the most vulnerable creditors – including reverse mortgage borrowers who are ‘exclusively elderly, generally have low income, lack access to counsel, and have higher rates of communicative, cognitive, and other disabilities that make it difficult for them to advocate for themselves,’” the attorneys stated. “A statutory committee is the only way these individuals will be represented here.”

The attorneys also note that as the bankruptcy nears the critical stage in which the court rules on Ditech’s proposed plan, it is all the more important that the views of borrowers be heard.

“Nothing in the Bankruptcy Code permits the Debtors or the First Lien Lenders to silence the voice of consumers that both Congress and the U.S. Trustee sought to protect,” they wrote.

The court apparently saw the validity of this argument, ruling to keep the consumer committee in play as the bankruptcy proceedings continue.

“The Consumer Creditors’ Committee is pleased with the decision and thankful to the court for its comprehensive and well-reasoned analysis, especially given the importance of these issues to the consumer borrowers affected by Ditech’s bankruptcy,” the committee said in response to the ruling.

Credit: HousingWire

Subprime Mortgages Keep Minting Cash for Ex-Bear Stearns Banker

November 11, 2019, 6:00 AM CST

Subprime mortgages may have wreaked havoc on the U.S. economy over the past decade, but they have been very good to Tom Marano.

At Bear Stearns Cos., he gained fame in the industry and no small fortune leading the team that bundled billions of dollars of subprime home loans into securities. The historic implosion of those low-quality, risky bonds brought down Bear and helped fuel the worst financial crisis since the Great Depression.

Yet it’s done little to hinder his career or earning potential. He has, in fact, leveraged his extensive mortgage background and relationships into a lucrative second act. He cleans up and sells troubled mortgage companies that had suffered in the housing crash.

In his latest role, which closed last month, Marano guided home loan servicer Ditech Holding Corp. through bankruptcy and sale. The buyer of most of its assets was a firm run by a former Bear Stearns colleague. Before that, Marano oversaw a similar Chapter 11 bankruptcy for Residential Capital LLC, known as ResCap. Ironically, pieces of the loans that his group securitized at Bear ended up at both ResCap and Ditech.

Marano’s career and connections show how even a decade after a crash that left millions jobless and evicted from their homes, the same bankers who created pools of risky loans continue to benefit. Critics chafe at the unfairness, while others say people like Marano are well-suited to play fix-it roles given their expertise.

“It’s like somebody who works at a nuclear power plant and causes a disaster and then works on the cleanup,” said Jared Ellias, a professor of bankruptcy law at the University of California Hastings. “It may feel a little bit morally ambiguous, but in truth it’s just capitalism. People who have specific skill sets will get hired to use them.”

Protecting Consumers (Who’s he kidding?)

In an interview and over email, the 58-year-old Marano said it’s not surprising that he’s been brought in to restructure mortgage firms.

“I’ve got some pretty good experience defusing these over-leveraged financial companies,” he said.

Marano said the financial crisis was the result of systemic failures while acknowledging some “slippage in industry standards” by bundling loans to home buyers with low credit ratings.

“I have always put doing right by the customer first,” he said. “At every place I worked, from Bear to ResCap to Ditech, I put in place policies and and practices to strengthen standards and protect consumers to help them keep their homes.”

Marano worked at Bear Stearns for more than 25 years, becoming one of the firm’s central figures in its push to ramp up the sale of bonds backed by loans to low-credit borrowers. With Marano as head of its mortgage-backed securities unit, the bank was selling tens of billions of dollars of those investments each year.

But after real estate prices fell and mortgage defaults surged in 2007, lawsuits against Bear started to pile up, accusing the bank of false and misleading statements in securitizing loans made to borrowers with no ability to repay.

Compensation Package

While it’s difficult to tally Marano’s total career earnings, some numbers are public: He was paid $5.6 million in his first full year at ResCap in 2009 while the company lost $7.3 billion. At Ditech he was hired with an annual compensation package of $2.25 million, not including stock options and potential bonuses, according to filings.

At Bear, a 2011 lawsuit said Marano received “stratospheric compensation,” without providing details.

Marano didn’t comment directly on his past earnings but said that he contributes to causes including cancer research and homelessness.

It took him only one month to land a top job at ResCap after Bear Stearns was sold to JPMorgan Chase & Co. in a fire sale in March 2008.

When he arrived, ResCap, once one of the largest subprime mortgage lenders, was already facing a rise in foreclosures that had left it on the brink of bankruptcy. It was subject to lawsuits from buyers of mortgage bonds who alleged the underlying loans were faulty.

Among the securities that followed Marano to ResCap was “SACO 2006-8.” That was the security that gained notoriety after it was disparaged by a Bear Stearns vice president, in an infamous 2006 email, as a “SACK OF S—.”

Ski Resort

Marano said that he didn’t know about the email at the time. “If I had been aware of a person intentionally originating bad loans, I would have terminated them. Period,” he wrote in an email.

ResCap filed for bankruptcy and sold its assets for $4.5 billion in 2012. The sale included servicing rights on $50 billion of mortgages to a company that would become Ditech, which meant, as fate would have it, Marano sold ResCap assets to a company he would wind up running several years later.

After that deal, Marano spent three years running ski-resort-owner Intrawest Resorts Holdings Inc., reaping $33 million when the company was sold, a regulatory filing showed.

A year later, in 2018, Marano was hired as CEO of Ditech, also struggling before he arrived. Within two months he was shopping Ditech for a potential sale. It filed for bankruptcy last February, selling its servicing rights for about $1 billion to New Residential Investment Corp. That firm is run by Michael Nierenberg, another Bear Stearns alum who had worked closely with Marano as co-head of mortgage-backed securities trading.

Ditech’s assets included the servicing rights for at least four pools of mortgages that were packaged and sold to investors by Bear Stearns in 2003 and 2005, when Marano was heading up the unit.

“These are 30-year loans, so you are going to have some subset of them that are still around,” said Marano. Subprime loans were under 4% of Ditech’s balance sheet in 2018, he said.

Marano earned a $500,000 bonus for executing the sale and then stepped down from Ditech on October 11. He said he has no immediate career plans.