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Ditech Financial LLC, once a household name in the mortgage industry, had a tumultuous history marked by innovative yet risky lending practices, involvement in the subprime mortgage crisis, and multiple bankruptcies.
Here, we look at Ditech’s journey, its product offerings, its role in the financial crisis, and the implications for those who had or are considering a mortgage.
The Rise of Ditech
Founded in 1995 in Costa Mesa, California, by John Paul Reddam, Ditech started as DiTech Funding Corporation, leveraging direct technology to offer mortgages online and via a toll-free number. It was one of the pioneers in offering non-prime mortgages, catering to borrowers with lower credit scores through higher interest rates and riskier loans. By the end of its first year, Ditech expanded to seven states and covered 46 states by 1996, fueled by an aggressive marketing campaign symbolized by the frustrated loan officer’s catchphrase, “Lost another loan to Ditech.”
Acquisition by GMAC and Expansion
In 1999, Ditech was acquired by GMAC (now Ally Financial), a move that marked the beginning of a new era. Under GMAC, Ditech continued to grow, venturing into offering 125% loans, allowing borrowers to take loans exceeding their property value, and low-documentation mortgages, which were later criticized for enabling income falsification.
The Subprime Mortgage Crisis
Ditech’s aggressive lending practices, particularly its focus on non-prime mortgages, positioned it as a significant player in the buildup to the subprime mortgage crisis. The company was accused of predatory lending practices, including encouraging unaffordable loans, misrepresenting loan terms, and pushing high-cost adjustable-rate mortgages without adequate risk disclosure. These practices contributed to the wave of defaults that triggered the global financial crisis of 2008.
Acquisition by Walter Investment Management Co.
The journey of Ditech took another turn in March 2013 when Walter Investment Management Co. acquired the company from Ally Financial, the entity formerly known as GMAC ResCap.
Following this acquisition, Ditech operated under the name of Walter’s subsidiary, Green Tree Servicing, for loan origination due to regulatory and licensing considerations. Ditech’s parent company, DT Holdings, functioned as a subsidiary of Walter Investment Management.
In a strategic move to consolidate its operations and brand identity, Ditech and Walter Investment affiliate Green Tree Servicing announced a co-branding initiative in March 2015. This initiative aimed to unify Walter’s origination and servicing arms under a single, recognizable brand: “Ditech Financial, A Walter Company.”
The transition, which concluded in the second half of 2015, signified a new chapter for the companies, merging the strengths and capabilities of Green Tree Servicing and Ditech Mortgage Corp.
Bankruptcy and Acquisition
The company filed for bankruptcy for the second time in February 2019. Its forward mortgage servicing and originations business, Ditech Financial LLC, was subsequently acquired by New Residential Investment Corp. for $1.2 billion. This sale included Ditech’s servicing rights portfolio with an unpaid principal balance of approximately $62 billion, along with servicer advance receivables and other core assets. Approximately 1,100 Ditech employees were transferred to New Residential to support the transition and increase in servicing operations volume.
Ditech’s Product Offerings
Before ceasing new mortgage offerings, Ditech provided a range of home loan and refinance options, including fixed-rate, adjustable-rate, and FHA loans. The company had shifted away from offering nonprime mortgages following its re-entry into the housing market in 2014, after a hiatus during the subprime mortgage crisis. Ditech’s strategy also included a co-branding and joint-venture initiative with over 600 institutional partners, offering direct consumer lending and correspondent lending services.
The Legacy and Lessons of Ditech
Ditech’s history serves as a cautionary tale about the risks associated with aggressive lending practices and the importance of responsible borrowing and lending. For those who had mortgages with Ditech or are considering a new mortgage, it’s crucial to understand the company’s role in the financial crisis and the implications of its bankruptcy and acquisition. While Ditech is no longer offering new mortgages, its legacy continues to influence the mortgage industry and consumer perceptions.
As the mortgage industry evolves, the story of Ditech highlights the need for more stringent regulatory oversight and the importance of transparency and fairness in lending practices. Borrowers should be wary of the terms of their mortgages and seek advice from reputable financial advisors to avoid the pitfalls that led to the subprime mortgage crisis.
Ditech’s journey from a pioneering online mortgage lender to a central figure in the subprime mortgage crisis and its eventual bankruptcy and acquisition reflects the broader challenges and pitfalls in the U.S. mortgage industry. Its history underscores the critical need for balance between innovation in lending practices and the protection of consumers and the financial system. As the industry moves forward, the lessons learned from Ditech’s rise and fall remain relevant for lenders, regulators, and borrowers alike.