CIT Group’s Delayed 10-Q Contains Important Information

Earlier today, CIT Group filed its delayed 10-Q form.  CRC is still reviewing it, but in a quick scan, here’s 6 important points:

1) Investigation ongoing: The HUD Office of Inspector General investigation into Financial Freedom and reverse mortgage servicing appears to be ongoing.

2) How many foreclosures? CIT reports over $790 million of loans in foreclosure as of June 30, 2016 (though doesn’t note how many homes are represented in that figure- CRC purchased data to determine that OneWest had foreclosed on more than 36,000 California households).

3) Reserves: As CIT Group disclosed earlier, it was reserving an additional $250 million for the Financial Freedom problems.  In the 10-Q, CIT reports:  “The Company continues to cooperate with the investigation and has begun discussions with the HUD OIG regarding the potential resolution of the matter….”

4) Material Weaknesses: The material weakness issue is also discussed in more detail here:

In connection with the preparation of the Company’s financial statements for the year ended December 31, 2015, the Company identified errors in the estimation process of the HECM Interest Curtailment Reserve that resulted in a measurement period adjustment.
Following the identification of the errors, management determined that a material weakness existed in the acquired business’s internal control over financial reporting related to the HECM Interest Curtailment Reserve. Specifically, controls were not adequately designed and maintained to ensure the key judgments and assumptions developed from loan file reviews or other historical experience are accurately determined, valid and authorized, the data used in the estimation process is complete and accurate, and the assumptions, judgments, and methodology continue to be appropriate. This control deficiency could result in misstatements of the HECM Interest Curtailment Reserve that could result in a material misstatement of the consolidated financial statements that would not be prevented or detected.
5) When will material weakness be fixed?   A good question.  Not as of September 30, 2016, according to CIT:
Though the Company began to implement its remediation plan and improvements have been made in the processes in 2016, management does not expect that this material weakness will be fully remediated as of September 30, 2016. Management believes that the new or enhanced controls, when fully implemented and when tested for a sufficient period of time, will remediate the material weakness However, the Company cannot provide any assurance that these remediation efforts will be successful.

6) Federal Reserve Qualified Objection: CIT Group receiving a “qualified objection” from the Federal Reserve is also cited in the 10-Q:

CIT submitted its first CCAR capital plan to the Federal Reserve in April 2016. As this filing was a private submission, the FRB did not publish its findings but informed CIT that we received a qualitative objection to the plan. While we have not yet received the detailed feedback, we have begun our remediation efforts. In providing us with feedback the Federal Reserve did approve the continuation of our dividend and share repurchases of approximately $140 million, consistent with 2015

You can access CIT Group’s 10-Q form here.

OneWest Bank and Financial Freedom Have Foreclosed on 16,220 Reverse Mortgages since 2009

Just how many seniors and their families have been foreclosed on because of a reverse mortgage serviced by OneWest Bank?

New data (see fact sheet here) that CRC obtained from HUD, indicates that Financial Freedom/CIT Group’s share of reverse mortgage foreclosures (39%) since April 2009 is more than two times greater than the company’s estimated market share (17%).

Kevin Stein, associate director at the California Reinvestment Coalition, comments:

“CRC was contacted by a number of widowed homeowners and other heirs who shared disturbing stories about Financial Freedom. Using a FOIA request, we asked Financial Freedom’s primary regulator, HUD, about the total number of foreclosures it had completed, and the number of complaints HUD had received against Financial Freedom.”

Stein adds: “The data HUD provided is a red flag that something is amiss at Financial Freedom. While the company services an estimated 17% of the reverse mortgage market, data from HUD indicates that Financial Freedom was responsible for 39% of the 41,237 HECM reverse mortgage foreclosures that occurred since April 2009. This builds on the troubling consumer stories shared with us about Financial Freedom and CIT Group disclosing it had received subpoenas about Financial Freedom from HUD’s OIG.”

“This newly uncovered data about Financial Freedom’s outsized role in HECM foreclosures is troubling, and suggests the need for a thorough and transparent investigation,” comments Maeve Elise Brown, executive director at Housing and Economic Rights Advocates.

HUD declined to fully answer CRC’s FOIA request, which also asked for other information, including the number of complaints made against Financial Freedom, because HUD estimated it would take 120 years for the regulator to compile the information.

Stein comments: “It’s deeply concerning from a consumer protection standpoint when the main regulator for an industry tells you that because of their outdated technology, it will take them 120 years to compile complaint data about one of the companies they’re supposed be regulating. If HUD lacks the ability to systematically access, analyze, and respond to consumer complaint data, how can it effectively regulate this industry, and individual companies? This is important information for identifying problematic practices and bad actors. In comparison, anybody with an internet connection can use the CFPB’s complaint database, and the CFPB routinely publishes public reports about the complaints it receives.”

How Does CIT Group Interact with American Seniors? By Foreclosure, Mostly

While the opportunity to be a spokesperson for a reverse mortgage company may be appealing to failed presidential candidates and Hollywood actors, the loans can have very real, very dangerous consequences for seniors and their family members.

A recent case in Minnesota illustrates this problem- and how a subsidiary of CIT Group, Financial Freedom, is playing an outsized role in foreclosing on seniors.  The story below cites CRC research finding that Financial Freedom has been responsible for 39% of reverse mortgage foreclosures since 2009- despite only servicing an estimated 17% of the market.

Fox 9: Commerce Commissioner calls ‘widow foreclosures’ a ticking time bomb (May 2016)

Financial Freedom foreclosing on Minnesota Widow


How the CIT Group Merger with OneWest Took CRA A Step Backwards

Community Reinvestment Act

Editor’s note: Yesterday, Paulina Gonzalez, executive director of the California Reinvestment Coalition and John Taylor, chief executive of the National Community Reinvestment Coalition, wrote an OpEd in American Banker about the OneWest and CIT Group merger.  They explain that the merger represents several large steps backwards for the Community Reinvestment Act, the enforcement of it by the Office of the Comptroller of the Currency and the Federal Reserve, and the trust that communities have in these regulators to enforce the CRA.

If ever there were a poster child for the importance of regulators enforcing the Community Reinvestment Act, it was the merger of CIT Group and OneWest Bank. Both banks had troubled histories and their proposed merger was the first time a “systemically important financial institution” would be created by a bank merger. However, in reality, the role the regulators have played has been deeply disappointing.

You can read the whole post here: CRA Goals Are the Casualty of CIT-OneWest Merger

California Reinvestment Coalition Denounces OCC’s Approval of CIT Group’s “New” CRA Plan

Community Group Says OCC’s Approval Contradicts Goals of the CRA

San Francisco, CA- May 12, 2016—Today, the California Reinvestment Coalition (CRC) strongly criticized a decision by the Office of the Comptroller of the Currency (OCC) to approve a “new” Community Reinvestment Plan by CIT Group which is substantially the same as a CRA plan the OCC rejected in 2015.

In its conditional approval of CIT merging with OneWest Bank, the OCC required CIT Group to revise its plan to clearly describe how the bank will help meet the credit needs of low and moderate income individuals and geographies, including through investments in affordable housing.

However, CIT Group’s “new” CRA plan, which was approved by the OCC, has the exact same overall dollar commitment ($5 billion over four years) as the draft plan that CIT Group and OneWest developed in February 2015 and that the OCC had ordered the banks to improve last July. CRC’s analysis of both plans places the bank at the bottom of its peer banks in California for CRA activities.

Advocates also criticize the new plan for failing to meaningfully target the bank’s commitments to low income and moderate income individuals or geographies. For example, mortgage loans to upper income homeowners in wealthy neighborhoods and loans for luxury multifamily housing can be reported by CIT to its regulators and could count towards the bank’s goals in its plan.

Paulina Gonzalez, executive director of CRC, comments: “The Community Reinvestment Act was enacted in response to the redlining of communities and implementation and enforcement of this law is meant to ensure that low and moderate income communities have access to banks, credit, and other financial services. Unfortunately, those communities are not the main focus of CIT’s new plan.”

CRC members and allies documented and presented to the OCC and Federal Reserve an unprecedented number of issues including an anemic branch presence in LMI communities (see maps below) and low lending to borrowers of color, prompting possible redlining concerns.

OneWest’s record of foreclosures concentrated in neighborhoods of color (68% of the bank’s foreclosures in California occurred in majority-minority zip codes) and questionable reverse mortgage foreclosure practices on seniors and their families also raises fair housing concerns. The OCC heard from impacted consumers at a hearing about the merger and CRC also shared information with the OCC that it obtained via Freedom of Information Act requests to the FDIC and HUD.

Michael Banner, president and chief executive of Los Angeles Local Development Corporation, explains: “The bank’s “commitment” to locating 15% of branches in LMI communities (exactly half the industry average) would be laughable if it weren’t so harmful. Why should anyone believe that the OCC expects CIT Group to meet the credit needs of communities if it doesn’t have branches in them?”

One West Bank Branches
Hyepin Im, founder and president of Korean Churches for Community Development,
adds: “OneWest’s record of mortgage lending to Asian American borrowers was less than half the industry average, leading us to question their commitment to serving LA’s diverse communities. This new plan, and the OCC’s approval of it, only adds to our concerns.”
One West Mortgage Lending 2014

Kevin Stein, associate director of CRC, comments: “One of the main ways OneWest Bank interacted with low income communities and communities of color during the past seven years has been through foreclosing on them. The OCC’s approval of this plan sends the wrong message to banks and to California communities.”
Onewest And Financial Freedom Foreclosures In Ventura La Orange Riverside Counties

Sharon Kinlaw, executive director of the Fair Housing Council of San Fernando Valley, adds: “The conditional merger approval was an opportunity for the bank and the OCC to address the serious concerns raised by over a hundred organizations in the merger process. Instead, the bank offered a weak plan, and the regulators approved it, hoping advocates like us would go away. But we’re not going anywhere and we will continue to demand accountability for California communities.”

CIT Group’s CRA plan vs. City National’s CRA plan: In contrast to the CIT Group and OneWest merger, as part of its merger with Royal Bank of Canada, City National Bank developed a robust CRA plan with input and support from community members. City National Bank’s CRA plan, released in 2015, commits to $11 billion of CRA activity over five years, or nearly double what CIT Group proposed and the OCC accepted. 

Notably, City National doesn’t have a history of reckless foreclosures on communities of color and seniors, subpoenas from HUD, questionable loans to bankrupt Hollywood studios, golden parachutes to departing executives, or unpaid TARP bailouts.

For more information about the CIT Group and OneWest Bank merger , visit CRC’s OneWest Bank and CIT Group Merger Center. 

What’s Being Said About Steve Mnuchin?

In case you missed it, Donald Trump announced last week that Steve Mnuchin will be his new national fundraising chair.  And, in case you missed this, Steve Mnuchin is the former chair of OneWest Bank. CRC opposed a merger between OneWest Bank and CIT Group.

Here’s a sampling of what’s being said about Steve Mnuchin, OneWest, and the merger with CIT Group:

However, Trump has made no secret about his admiration for tough negotiators, and Mnuchin certainly appears to be one — especially when the American taxpayer is across the table. The CIT acquisition closed despite a level of community backlash that wasn’t there for the myriad other bank mergers that have taken place in Los Angeles in the last couple of years, and the loss-share agreement carried over to CIT. Donald Trump’s Finance Chair Is A Bank Exec Who Made ‘Yuge’ Profits From The Financial Crisis

From the Rachel Maddow Show (fast forward to about 5 minutes in to learn about protests against OneWest):

Similarly, OneWest Bank foreclosed on more communities of color than white communities. Of the 35,877 foreclosures the bank conducted in California from April 2009 to April 2015, 68 percent occurred in areas where the non-white population was 50 percent or higher.  Trump’s New Money Man Has a ‘Repulsive’ Record of Throwing Homeowners Out on the Street 

As a banker, Trump’s new fundraising chief made a specialty of targeting the most vulnerable sections of borrowers, including the elderly and racial minorities. Trump names hedge fund boss as finance chairman

Even among the many bad actors in the national foreclosure crisis, OneWest stood out. It routinely jumped to foreclosure rather than pursue options to keep borrowers in their homes; used fabricated and “robo-signed” documents to secure the evictions; and had a particular talent for dispossessing the homes of senior citizens and people of color. Donald Trump’s Finance Chair Is the Anti-Populist From Hell

“There is a sad irony in the image of Steve Mnuchin as a philanthropist, compared to the reality of Mnuchin as the leader of a bank responsible for foreclosing on tens of thousands of American families and senior citizens,” she said. “Steve Mnuchin was greatly enriched by OneWest Bank and now CIT Group, but those banks did little to serve the needs of ordinary families and working class communities.” The Worst of Wall Street: Meet Donald Trump’s Finance Chairman


Eight Things to Know About Steve Mnuchin

Upon hearing the news that Donald Trump has chosen Steven Mnuchin as his national finance chair, California Reinvestment Coalition Executive Director Paulina Gonzalez released the following statement:

The California Reinvestment Coalition is an advocacy organization that advocates for banks to reinvest in California’s low income communities and communities of color. While much of the focus thus far has been on Mnuchin’s role at Goldman Sachs, we want to share eight points about Steve Mnuchin’s role as chair of the former OneWest Bank, and as a current director on CIT Group’s board.

1) HUD Subpoenas:  In CIT Group’s most recent annual report, the bank disclosed that it had received multiple subpoenas in 2015 from the Office of Inspector General at the Dept. of Housing and Urban Development (HUD) related to the servicing of reverse mortgages by OneWest’s subsidiary, Financial Freedom. Thus far, CRC’s efforts to learn more about this investigation and the subpoenas have been rebuffed by HUD.

2) OneWest Bank is a “leader” in foreclosing on seniors: Using a FOIA request, CRC determined that OneWest’s reverse mortgage servicing subsidiary, Financial Freedom, was responsible for 39% of the HECM reverse mortgage foreclosures since April 2009 (when Mnuchin and his group of investors bought the failed IndyMac).  However, CRC estimates that Financial Freedom only services 17% of the reverse mortgage market.  In other words, Financial Freedom is foreclosing on reverse mortgages at about twice the rate that one would expect, given their share of the HECM reverse mortgage market. See Fact Sheet Here.

3) California communities are still waiting for reinvestment plans: In Oct 2014, CIT Group announced its plans to acquire OneWest Bank. In July 2015, the Office of the Comptroller of the Currency conditionally approved this merger, specifically conditioning its approval on CIT Group improving its draft CRA plan the banks had earlier proposed.  As part of the merger, Mnuchin, who was board chair at OneWest, received a board position at CIT Group. Nearly two years after the merger was first announced, California communities are still waiting to hear about CIT Group’s reinvestment plan.

4)  Conflicted roles at OneWest Bank and Relativity Media: Multiple media outlets have highlighted that Steve Mnuchin played what some might consider “conflicted roles” in serving as board chair of OneWest Bank, and serving as co-chair at Relativity Media, a Hollywood studio that recently declared bankruptcy.  According to Variety (Relativity Co-Chairman Steven Mnuchin Quietly Exited Just Before Big Losses, Aug. 5, 2015), as part of the bankruptcy, other creditors questioned how OneWest was able to “drain” $50 million from Relativity Media right before the bankruptcy.

5) Approving a golden parachute for John Thain: After the conditional merger approval of CIT Group with OneWest Bank, Steve Mnuchin was given a seat on CIT Group’s board.  CIT’s board approved a policy change to CIT Group’s retirement plan that Reuters estimates could be worth an extra $13 million for John Thain, the former CEO of CIT Group, who is also well-known for his purchase of a $35,000 commode at Merrill Lynch.  This policy change was approved despite the Wall Street Journal reporting that the board of CIT Group only awarded John Thain 2 points out of a possible 20 in its evaluation of Thain’s integration of OneWest Bank.

6) OneWest Bank’s outsized role in foreclosing on communities of color: CRC and the Urban Strategies Council conducted an analysis of the 35,877 foreclosures OneWest Bank conducted on California households from April 2009 to April 2015. Of those foreclosures, 68% occurred in zip codes where the non-white population was 50% or greater. Over 7,900 of these foreclosures occurred in Los Angeles County. You can see more maps here.

OneWest Foreclosures in California April 2009 to April 2015

7)  Corporate welfare for billionaires: OneWest Bank is the name given to the failed IndyMac Bank after it was purchased by Steven Mnuchin and a group of other billionaires, including Michael Dell, George Soros, Christopher Flowers and John Paulson.  As part of their purchase of OneWest Bank, they obtained a “shared loss” agreement (what most people would consider corporate welfare) from the FDIC which reimbursed these billionaires for their costs for foreclosing on people unlucky enough to have mortgages from IndyMac. When CRC asked, the bank executives refused to disclose how much money they had received from the FDIC. Through a FOIA request, CRC later determined that the FDIC estimated it would eventually pay out $2.4 billion to the billionaire owners of OneWest Bank for their costs associated with foreclosing on families.  

8)  CIT Group never paid back $2.3 billion loan from taxpayers: CIT Group is no stranger to corporate welfare, having pocketed $2.3 billion from the US taxpayers through a TARP bailout the bank never paid back (thanks to its 2009 bankruptcy).