N.Y. Attorney General wary of Ditech bankruptcy's effect on foreclosures

New York Attorney General Letitia James is monitoring how the bankrupt Ditech Holding Corp. handles borrower-sensitive issues like foreclosure proceedings, and is backing the involvement of a consumer creditors' committee.

Her worry is that Ditech could use bankruptcy to make an end run around state court protections for borrowers in the foreclosure process.

Andrew Harrer/Bloomberg

"Bankruptcy court should never be used as a tool to unjustly oust New Yorkers from their homes," said James in a press release.

In addition to foreclosure proceedings and loss mitigation, James is keeping an eye on the company's Reverse Mortgage Solutions unit, which does business with borrowers age 62 and up.

The state filed a brief and exhibits related to its concerns with the court in the Southern District of New York on Monday.

These include individual written accounts of consumer concerns like alleged delays and improprieties in the loan modification process, and searches quantifying the legal and regulatory complaints in New York related to Ditech.

At least 50 New York complaints have been filed with the Consumer Financial Protection Bureau, according to a court filing by Assistant Attorney General Elizabeth Lynch.

The team representing New York includes Christopher D'Angelo, a former CFPB official who is now the state's chief deputy attorney general for economic justice.

Ditech earlier this month accepted stalking horse bids for certain assets from New Residential Investment Corp. and Mortgage Assets Management, but there have been objections, according to court documents.

In February, Ditech refiled for bankruptcy to facilitate a restructuring agreement with lenders holding more than 75% of its term loans.

Ditech previously filed for bankruptcy back in November 2017 under the name Walter Investment Management, and later emerged from it and rebranded.