CIT Group’s New 10-Q Has Interesting Information for Investors on Redlining and Reverse Mortgage Investigations

Earlier this month, CIT Group filed its 10-Q.  For people who have followed OneWest Bank, Financial Freedom (reverse mortgage servicer), Steve Mnuchin, Joseph Otting, redlining, or the New York Attorney General, there’s some interesting news you’ll want to read:

1) The HUD Office of Inspector General investigation:  BadBankMerger long-time readers may recall that CIT Group had previously disclosed receiving subpoenas from HUD’s OIG back in the 3rd and 4th quarters of 2015- shortly after the merger of OneWest and CIT Group was completed.  CIT Group’s latest 10Q was released on May 8th, 2017. At that point, the $89 million whistleblower settlement was not yet public.  CIT Group explained to investors: “The Company continues to cooperate with the investigation and is engaged in discussions with the HUD-OIG regarding resolution of the matter. We do not expect the outcome of the investigation to have a material adverse effect on the Company’s financial condition or results of operations in light of existing reserves.”dv

For those following the news this week, the Dept of Justice announced on Tuesday that CIT Group had agreed to an $89 million settlement related to the HUD OIG investigation. This settlement happened after Sandy Jolley, a long-time consultant for seniors and their families who are dealing with problems with reverse mortgages- including incompetence by the reverse mortgage servicers, blew the whistle on Financial Freedom.

According to the US Department of Justice:

The United States alleged that Financial Freedom sought to obtain insurance payments for interest from FHA despite failing to properly disclose on the insurance claim forms it filed with the agency that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from March 31, 2011 to August 31, 2016, the mortgagees on the relevant reverse mortgage loans serviced by Financial Freedom allegedly obtained additional interest that they were not entitled to receive.

When CRC reached out the US Department of Justice asking how many homeowners were interviewed as part of this investigation, or how many loans Financial Freedom had fraudulently sought reimbursement for, we were told: “This is not publicly available information so we have no comment.”  CRC asked because we have been contacted by a large number of seniors and their family members in dealing with various “challenges” when trying to work with Financial Freedom.

While it appears this investigation is mostly completed, it’s worth noting the following paragraphs (from the settlement agreement) with interest.

Perhaps there is still more to come?

Financial Freedom agrees to cooperate fully and truthfully with the United States’ investigation of individuals and entities not released in this Agreement. Upon reasonable notice, Financial Freedom shall encourage, and agrees not to impair, the cooperation of its directors, officers, and employees, and shall use its best efforts to make available, and encourage, the cooperation of former directors, officers, and employees for interviews and testimony, consistent with the rights and privileges of such individuals. Financial Freedom further agrees to furnish to the United States, upon request, complete and unredacted copies of all non-privileged documents, reports, memoranda of interviews, and records in its possession, custody, or control concerning any investigation 7 of the Covered Conduct that it has undertaken, or that has been performed by another on its behalf.

2) NY Attorney General Investigation:  While the HUD OIG investigation appears to be mostly completed, CIT Group disclosed that the Office of the Attorney General of the State of New York (“NYAG”), served a subpoena on the Company regarding HECM loans in the second quarter of 2017. According to CIT, “The subpoena requests documents and other information related to Financial Freedom’s HECM loan business in the State of New York. The Company is in the process of evaluating and preparing to respond to the subpoena and does not have sufficient information to make an assessment of the outcome or the impact of the NYAG subpoena.”

 

3) Redlining Complaint: Long-time readers know that CRC filed a redlining complaint with HUD about OneWest Bank in November 2016.  CIT Group provides an update to its investors about this complaint in its latest 10Q:
In the first quarter of 2017, HUD accepted a complaint from the California Reinvestment Coalition (“CRC”) alleging that CIT engaged in discriminatory housing lending practices from 2011 until the present, in violation of the Fair Housing Act (“FHA”). The Company has filed a response to the complaint denying the allegations. HUD has not yet determined whether there is “reasonable cause” to pursue or dismiss the complaint.
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