Yes. The Department of Justice confirmed in May 2017 that Financial Freedom, a reverse mortgage subsidiary of OneWest Bank, engaged in predatory practices against seniors. The company agreed to pay $89 million to settle allegations that included illegal foreclosures, forcing surviving spouses from their homes, and making inflated claims to the Federal Housing Administration’s insurance fund.
Financial Freedom’s parent company, OneWest Bank, operated under the chairmanship of Steven Mnuchin during the period when these violations occurred (March 31, 2011 through August 31, 2016). The settlement, announced by the U.S. Department of Justice and HUD, represents one of the largest penalties against a reverse mortgage servicer and reflects systematic harm to vulnerable borrowers.
Table of Contents
- What Specific Predatory Practices Did Financial Freedom Use Against Reverse Mortgage Borrowers?
- How Did These Violations Remain Hidden for So Long?
- Who Exposed Financial Freedom’s Practices and What Did They Discover?
- What Did the $89 Million Settlement Actually Require Financial Freedom to Do?
- What Warning Signs Should Seniors Watch for to Avoid Similar Predatory Servicing?
- What Happened to OneWest Bank After the Settlement?
- How Has the Reverse Mortgage Industry Changed Since the 2017 Settlement?
What Specific Predatory Practices Did Financial Freedom Use Against Reverse Mortgage Borrowers?
Financial Freedom employed multiple tactics designed to accelerate foreclosures and extract maximum claims from the FHA insurance system. The company illegally foreclosed on borrowers without first granting them repayment options—a violation of federal reverse mortgage regulations that explicitly require servicers to offer struggling borrowers a chance to bring loans current before initiating foreclosure. In many cases, seniors who missed property tax or insurance payments received immediate foreclosure notices instead of the required counseling and workout opportunities. The company also engaged in “widow foreclosures,” a particularly aggressive tactic that evicted surviving spouses from their homes after the original reverse mortgage borrower died.
Federal law protects surviving spouses who did not take out the loan, but Financial Freedom ignored these protections and pursued foreclosure as quickly as possible, displacing grieving families during their most vulnerable moment. Beyond the foreclosure violations, Financial Freedom systematically submitted inflated claims to the FHA’s insurance fund for losses on defaulted loans. When a reverse mortgage becomes non-performing, the FHA’s insurance is supposed to cover legitimate losses, but Financial Freedom misrepresented the extent of those losses and claimed reimbursement for costs that should not have been covered. This scheme diverted taxpayer-funded FHA resources while shifting losses away from the servicer and onto the federal government. The cumulative effect was devastating: seniors lost their homes through illegal procedures while Financial Freedom profited through fraudulent insurance claims.
How Did These Violations Remain Hidden for So Long?
The reverse mortgage servicing industry operates with minimal transparency, and most borrowers—particularly elderly Americans—lack the resources to challenge a servicer’s decisions. Financial Freedom’s foreclosure procedures were technically documented but carefully designed to appear lawful while circumventing the spirit of federal regulations. Property tax and insurance shortfalls became the justification for rapid foreclosure, obscuring the fact that borrowers were never offered the repayment alternatives they were legally entitled to. However, if a borrower or advocate examined the loan file carefully, the absence of required counseling documentation or workout offers would become obvious—this is exactly what exposed the scheme.
The case reached federal authorities through a combination of whistleblower reports and regulatory investigation. The new York Attorney General’s office began investigating Financial Freedom’s reverse mortgage servicing practices independently, signaling that state-level regulators had grown suspicious of the company’s activities. These investigations eventually connected with federal agencies, leading to the Department of Justice and hud coordinating a comprehensive review of Financial Freedom’s practices across its entire portfolio. The multi-year investigation reviewed thousands of loans, revealing a pattern of systematic abuse rather than isolated errors.
Who Exposed Financial Freedom’s Practices and What Did They Discover?
Consumer advocate Sandra Jolley played a critical role in exposing Financial Freedom’s predatory practices and received $1.6 million in whistleblower compensation for her efforts. Jolley documented specific cases where Financial Freedom violated borrowers’ rights, compiled evidence of the systematic nature of the violations, and brought this information to federal authorities. Her work provided the investigative roadmap that allowed the Department of Justice and HUD to identify the scope of the problem—that these were not scattered mistakes but a deliberate business strategy to maximize foreclosures and insurance claims at the expense of vulnerable seniors.
Jolley’s compensation under federal whistleblower programs (which protect and reward individuals who expose fraud) underscores the seriousness of Financial Freedom’s violations. The magnitude of her award reflected the significance of her contribution to the government’s case and the scale of fraud she helped expose. Whistleblower protections exist precisely because corporate wrongdoing often remains invisible without insiders or advocates willing to speak up. In the reverse mortgage industry, where borrowers are frequently isolated and unfamiliar with their legal rights, external advocates like Jolley become essential to holding servicers accountable.
What Did the $89 Million Settlement Actually Require Financial Freedom to Do?
The $89 million settlement, while substantial, included both financial remedies and behavioral requirements. A portion of the settlement funded a restitution program to compensate affected borrowers—seniors who had been illegally foreclosed on or whose spouses had been wrongfully evicted. The settlement required Financial Freedom to identify all borrowers whose loans contained violations and calculate damages based on the specific harm each borrower suffered, whether that was lost home equity, unnecessary legal fees, or relocation costs. Eligible borrowers could apply for compensation, though the process required proving their loan fell within the violation categories and documenting the damages they incurred.
The settlement also imposed ongoing compliance obligations on Financial Freedom. The company was required to implement new servicing procedures, provide additional staff training on federal reverse mortgage rules, and submit to third-party monitoring of its loan servicing practices. These operational changes were designed to prevent the company from repeating the same violations. However, if a borrower believes they were harmed by Financial Freedom’s practices but did not receive settlement compensation, proving eligibility can be complex—the settlement window has now largely closed, and claims filed outside the designated period typically cannot be pursued through this specific settlement.
What Warning Signs Should Seniors Watch for to Avoid Similar Predatory Servicing?
Seniors considering or currently holding reverse mortgages should be alert to several red flags that indicate a servicer may not be operating transparently or honestly. If a servicer demands immediate full repayment due to property tax or insurance lapses without first offering to work with the borrower on payment plans or alternatives, this is abnormal—federally regulated servicers must provide these options. Communication patterns matter: legitimate servicers maintain documented contact with borrowers before initiating foreclosure, while predatory servicers may skip directly to legal action. Any foreclosure threat received without prior written notice describing available repayment options should trigger immediate consultation with a reverse mortgage counselor or elder law attorney.
Another warning sign is pressure to refinance or modify a loan in ways that increase the servicer’s fees or accelerate loan payoff timelines. Surviving spouses who are told they must vacate a home after the original borrower dies should question this immediately—federal law protects non-borrowing spouses in most circumstances, and a legitimate servicer will explain these protections before proceeding. Seniors should also be cautious of any servicer that makes it difficult to obtain loan statements, challenges origination terms, or refuses to acknowledge the borrower’s legal rights. If something feels pressured or unclear, contacting the Federal Housing Administration’s reverse mortgage counseling hotline or consulting an elder law specialist at no cost can clarify whether the servicer is operating within legal bounds.
What Happened to OneWest Bank After the Settlement?
OneWest Bank itself continued operations after Financial Freedom settled with the federal government, though the company eventually exited the reverse mortgage business entirely due to reputational damage and regulatory scrutiny. The settlement required Financial Freedom to correct its practices but did not shut down the subsidiary; however, the ongoing compliance requirements and monitoring made it increasingly uneconomical to continue servicing reverse mortgages under such constraints. By 2020, Financial Freedom had substantially reduced or eliminated its reverse mortgage servicing portfolio, effectively ending the company’s presence in the market.
The broader industry impact was significant. Other reverse mortgage servicers took notice that federal agencies were willing to levy massive penalties for systematic violations, and most competitors implemented more strong compliance programs to avoid similar investigations. The settlement served as a cautionary tale: predatory practices eventually attract regulatory attention, and the financial costs of settlement far exceed any profits extracted through illegal foreclosures or fraudulent insurance claims.
How Has the Reverse Mortgage Industry Changed Since the 2017 Settlement?
Since Financial Freedom’s settlement, the reverse mortgage industry has faced increasing scrutiny from the FHA, state attorneys general, and congressional oversight. The FHA tightened its servicing regulations, requiring more explicit documentation of borrower communications, clearer disclosure of alternatives before foreclosure, and stronger protections for non-borrowing spouses. These regulatory changes were directly prompted by the Financial Freedom violations, making the settlement a catalyst for system-wide improvements. Servicers now must provide borrowers with specific notice periods before pursuing foreclosure and must document that they offered and explained repayment alternatives.
The reverse mortgage market itself has evolved. Fewer large financial institutions service reverse mortgages today compared to 2011-2016, partly due to the regulatory burden and reputational risks revealed by the Financial Freedom case. For seniors, this consolidation means fewer servicers to choose from, but also potentially more careful due diligence by remaining companies attempting to maintain clean regulatory records. The landscape remains imperfect—reverse mortgage complaints to federal regulators and state attorneys general continue to surface—but the Financial Freedom settlement established a precedent that predatory servicers face serious federal consequences.
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