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.

2 thoughts on “CIT Group’s Delayed 10-Q Contains Important Information

  1. Pingback: California Reinvestment Coalition Responds to Steve Mnuchin’s Likely Nomination for Treasury Secretary | The Troubled One West and CIT Group Merger

  2. Pingback: Get to know the incoming Treasury Secretary’s ‘foreclosure mill’ bank - KWOTABLE

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