Why Are Advocates Opposing the OneWest and CIT Group Merger?

Editor’s note: When the Federal Reserve and Office of the Comptroller of the Currency announced they were holding a public hearing on the proposed merger of OneWest Bank and CIT Group, the regulators also extended the comment period on this merger.  CRC’s fifth letter, outlining why CRC continues to oppose this merger, is included below.  For earlier letters, visit our Merger Resource page.  To see pictures from a rally held during the hearing, click here.

February 24, 2015

Re: CRC’s 5th comment letter: Continuing opposition to CIT Group application to acquire IMB and OneWest Bank and to merge OneWest and CIT Bank

 Dear Chairs Yellen and Gruenberg, Directors Watt and Cordray, Comptroller Curry, and Secretary Castro,

The California Reinvestment Coalition writes this fifth comment letter expressing our continuing opposition to the proposed acquisition of IMB and OneWest Bank (OWB) by CIT Group. OneWest has not met, and will not meet, community credit needs, and the Applicants have not established that this merger will provide a public benefit.

This letter is written to provide additional information for the public record, to inform the deliberations of the FRB and OCC, and to raise continuing concerns about the negative impacts of OneWest Bank on California communities.

The California Reinvestment Coalition (CRC), based in San Francisco, is a non-profit membership organization of community based non-profit organizations and public agencies across the state of California. We work with community-based organizations to promote the economic revitalization of California’s low-income communities and communities of color through access to equitable and low cost financial services. CRC promotes increased access to credit for affordable housing and community economic development, and to financial services for these communities.

Continuing unanswered questions: HUD FOIA Request

As noted previously, there are still many unanswered questions regarding this merger and these institutions. CRC still awaits a substantive response to our FOIA request to HUD to gather information about HUD’s oversight and policies relating to reverse mortgages, and the servicing practices of Financial Freedom in particular.

Specifically, we have sought basic information about the number, nature and resolution of complaints filed by consumers with HUD against Financial Freedom. We have also sought data on the number of foreclosures processed by Financial Freedom since OneWest took over ownership, including the number of such foreclosures processed against non-borrower surviving spouses, as well as the number of loans being serviced by Financial Freedom where a younger spouse was not listed on the loan and is therefore at risk of foreclosure.

If the FDIC, OCC, or Federal Reserve consumer complaint departments would like to share data on complaints they’ve received (as consumers aren’t always aware which regulator to turn to), then we would welcome that transparency.  We note that in the cases of Michelle Ayers and her sister Mary Dambacher, from North Fort Meyers, Florida- (surviving family members who encountered a host of servicing issues with Financial Freedom), they report being sent on a wild goose chase- not just by Financial Freedom, but also by the regulatory agencies where they sought help.  They started at HUD, where they were referred to a housing counseling agency, which couldn’t help because the loan was a reverse mortgage, then referred to the Florida Office of Financial Regulation which referred them to the OCC, which then directed them to the CFPB.

This FOIA request seeks information that must be considered by the banking regulators in order to determine whether OneWest bank is meeting the credit needs, and the convenience and needs, of its communities. How can the Federal Reserve and the OCC determine that OneWest is meeting the needs of its communities if it does not know how many foreclosures were processed by OneWest and its affiliates? This information should be part of the public record.

And yet, our FOIA request has been stalled as HUD has chosen to deny our request for a fee waiver on the grounds that CRC has a “commercial interest” in the information. This is difficult for our nonprofit organization to understand and accept. This denial and the delay in releasing the FOIA requested data merely add to the sense that with regard to this merger, there is something to hide, and the regulators, rather than increasing transparency for communities, are making details of this merger more opaque.

Bank supporters and opponents

 CRC wishes to supplement the public record to reflect that OneWest’s CEO has sought support from his Wall Street contacts and business partners in order to tout his message regarding his own management performance and desire not to have public hearings.

A few weeks ago, Bloomberg reported that OneWest CEO Joseph Otting had emailed community groups and Wall Street contacts, urging recipients to support the bank’s application by sending a letter to Fed Chair Janet Yellen.[1]

The draft letter of support found on the OneWest website and presumably drafted under the direction of CEO Joseph Otting reads as follows:

Dear Chair Yellen, President Dudley and Comptroller Curry,

I am writing to offer my support for the pending OneWest and CIT merger. OneWest serves as a strong source of capital and banking services to the Southern California community. This merger will retain and create new jobs in California. I believe the management team and OneWest have demonstrated its commitment to our community and to serving the needs of not only their clients but the community at large and due to this, I do not believe there is a need for a public hearing.

The draft email indicates that proposed commenters “believe the management team and OneWest have demonstrated its commitment to our community and to serving the needs of not only their clients but the community at large…”

As Bloomberg reports this email went out to Wall Street contacts, CRC wonders how knowledgeable about community needs these commenters will be, and how much weight the regulators will give these comments.

Further, CRC understands that several of the “supporters” are actual business partners and employees of OneWest. How objectively can these “supporters” speak to the bank’s service to the community, and how much weight will the bank regulators give to these comments?

Similarly, certain community groups are supporting the bank in its application, and have indicated they are developing partnerships with the bank.

In the application by Banc of California to purchase Banco Popular branches, the OCC requested and Banc of California provided a public list of grants to non-profit organizations over the prior two (2) years by month, organization and amount. The regulators should request the same of OneWest Bank – that it identify, by month, the level of support to all organizations receiving grants or investments or contracts, and for what purpose, for the last 2 years. Applicant submitted somewhat similar information in a letter dated October 2014, but the information appears to be incomplete, is broken out only by year and not month, and it is unclear how far into 2014 the data go. OneWest should be required to complete this exercise through February 2015, providing, by month through February 2015, a list of all groups with which it has a funding, investing or contractual relationship since the time it began to promote this proposed merger.

And for the record, CRC notes that approximately 100 organizations from California and from around the country are opposing this merger, as well as over 21,000 individuals and counting, making this, most likely, the most opposed bank merger in history.

CRC thanks the regulators for agreeing to hold one public hearing on this merger, which we believe reflects a recognition of the extent of the opposition to this merger and the many serious issues at play.

Financial Freedom: New complaint data and continuing concerns

CRC review of CFPB consumer complaint data reveals that approximately 150 complaints were filed against OneWest noting concerns with the sub product “reverse mortgage”. This represents roughly 12% of the number of reverse mortgage complaints that CFPB analyzed in its recent study on reverse mortgages.[2] Again, these CFPB complaints are likely completely independent of any complaints field against Financial Freedom with HUD, a more logical place for consumers to complain given HUD’s oversight of HECMs. We look forward to understanding how many complaints against Financial Freedom have been filed with HUD, though given the story cited earlier in this letter, we also suspect that the number of complaints actually filed is lower than the number of people who would like to complain if they had the time, capacity, and knowledge of where to complain, and if they were directed to the correct regulator.

(Further, a recent visit to the CFPB consumer complaint database now reveals a total of 1,226 complaints filed against OneWest, significantly more than we had noted in earlier comment letters.)

OneWest’s Financial Freedom reverse mortgage servicer affiliate continues to be the subject of reports suggesting potential abuses and community harm. On January 8, 2015, Fox 4 in North Fort Meyers, Florida,  reported on the case of Mary Damacher, who chained her sister Michelle Ayers to a pipe in the home that was first purchased by their grandparents, then passed down to her mother, until Financial Freedom foreclosed on them. The sisters attempted to purchase the home, but were reportedly rebuffed in their efforts by Financial Freedom.

“I’ve been preapproved for a mortgage and had all the paperwork taken care of to repurchase the home, and basically Financial Freedom and One West Bank has refused me the right to purchase my home,” Mary said.[3]

This case, and the others cited in prior letters, raise serious questions and concerns about how well Financial Freedom is complying with existing obligations to serve reverse mortgage borrowers, surviving spouses AND, as here, heirs who have certain rights to purchase the home.

Specifically:

  • What is HUD doing to oversee Financial Freedom foreclosures with regard to borrowers, surviving spouses, and heirs?
  • Will OneWest submit any losses from this foreclosure for reimbursement under the loss share agreement? How does the FDIC determine whether loss share reimbursement submissions by OneWest reflect losses suffered only after OneWest did all it could to mitigate them, and certainly only after OneWest followed existing laws and regulations? Is the FDIC aware of any situations or cases where OneWest Bank submitted a claim for costs related to a foreclosure, but then due to legal action or legal settlements, OneWest Bank later returned the reimbursement to the FDIC, or should have reimbursed the FDIC? As an example, consider the story of the San Luis Obispo couple, where OneWest eventually offered to settle for what was reported as a “seven figure sum.”  Had OneWest already requested reimbursement for any losses on this mortgage from the FDIC?  Is the FDIC fully confident it never paid out shared loss reimbursements for faulty foreclosures like this one?
  • How does the OCC, as OneWest’s primary regulator, oversee compliance issues with regard to Financial Freedom, and how do improper foreclosures via OneWest or Financial Freedom, impacting borrowers, surviving spouses, heirs and other family members impact (if at all) the OCC’s determination as to whether OneWest is servicing its communities under the Community Reinvestment Act?
  • How will the OCC and the Fed investigate and consider improper foreclosures by OneWest and Financial Freedom in determining whether this merger, absent any substantial conditions imposed, will provide a public benefit, as required?

An audit of Financial Freedom foreclosures and other non-home retention loss mitigation outcomes is necessary. In the meantime, Financial Freedom should not be allowed to process further foreclosures without going through a “notice and objection” process whereby an independent third party can confirm that proposed foreclosures are proper. A similar structure was created by the Massachusetts Attorney General in enforcing servicing obligations by Fremont Investment and Loan.[4]

Merger Decision Should Await Next FDIC Loss Share Compliance Review:

In a letter to CRC dated February 5, 2015, the FDIC reiterates that it believes it has no authority in the approval process relating to this merger, that estimates of future payments under the Loss Share Agreement are projections and subject to change, and that OneWest “is not out of compliance” with the loss share agreement.[5]

Importantly, the letter also indicates the next compliance review is scheduled to commence in May of 2015, in approximately three months.

We urge the FDIC to conduct an extensive audit of OneWest’s performance under the loss share agreement, and to make the results of this audit public, including providing a description of the extent to which the FDIC is able to verify that all OneWest foreclosures for which OneWest seeks reimbursement under the loss share agreement could not have been avoided through the provision of a loan modification or otherwise and were the result of OneWest and affiliates fully complying with all relevant loss mitigation and foreclosure prevention laws and rules, including importantly, provisions within the California Homeowners Bill of Rights that address dual-tracking, Single Point of Contact, and other servicer practices that push people into foreclosure.

CRC continues to believe that the FDIC audit and compliance review process does not provide sufficient due diligence to ensure that all OWB foreclosures were proper and unavoidable. This is most likely also true for the foreclosure oversight currently provided by the Federal Reserve and OCC for its regulated servicers and trustees.

Further, we strongly urge the Federal Reserve and the OCC to await the results of the FDIC audit before deciding on this Application. With all of the concern that has been raised about OneWest’s foreclosure practices, including testimony that will be presented at the public hearing on February 26, awaiting the FDIC audit (and response from HUD to our FOIA request) is the only prudent course.

        Systemic Risk and lobbying

CRC has maintained that the potential failure of CIT and OneWest poses a systemic risk to the financial system under current standards.

In 2008, another entity expressed concerned about CIT failing, saying, “CIT, … its demise poses a systemic danger because that would jeopardize 760 of its manufacturing customers and cause serious harm to more than 300,000 retailers, according to Bloomberg.”[6]

The entity that held that view in 2008 was none other than CIT Group itself as it sought a rescue from the federal government. This request was turned down and $2.3 billion in TARP funds was not enough to save CIT from declaring bankruptcy and wiping out its obligation to repay TARP. Is CIT truly LESS interconnected now than it was in 2008 when its interconnectedness led to bankruptcy?  If CIT were allowed to merge with OneWest, the resulting institution would be even larger, as would the risks created for communities, and possibly taxpayers as well.

Perhaps that was then and this is now, and CIT is no longer worried about systemic risk.

But according to Center for Responsive Politics, CIT Group spent $4,920,000 over the last two years on lobbying, or more than $6,400 a day. And one of the issues CIT lobbied on most heavily was – systemic risk.[7]

We urge the regulators to tread carefully in deciding whether to approve a new SIFI comprised of two institutions that failed in the recent past, and which rely on significant public subsidy.

Circumvention of CRA: NOT reinvesting where depositors reside

CRC has long argued that depository financial institutions must reinvest where their depositors live and are sending in deposits. The CRA has been circumvented and communities have suffered from a lack of investment by institutions like Capital One, ING, Countrywide Bank, Charles Schwab Bank, H&R Block Bank, etc.

CIT Bank similarly collects deposits from throughout the country, but reinvests primarily in its Salt Lake City assessment area. It would be interesting to know what percentage of CIT Bank’s billions in deposits actually originate from Salt Lake City, and how many communities are sending in more deposits to CIT Bank than are coming from the Bank’s lone assessment area.

The proposed CITBNA’s CRA Plan went from bad to worse when it determined that ALL of its deposits, including internet deposits originating from throughout the country, would be assigned to the Los Angeles MSA.

While this might seem like a good thing for Los Angeles, such circumvention of the CRA has only hurt Los Angeles and our state in the past and will likely do so in the future.

CITBNA must reinvest in its top deposit markets, even if outside of California, and the regulators should make this so. This issue is all the more pressing in that OneWest maintains a poor branch presence in LMI communities (its 15% of branches in LMI neighborhoods is HALF the industry average in California), and promises to move towards mobile banking as a way of serving LMI communities. We do not believe this will be a successful approach, and if all mobile banking deposits are assigned to one assessment area, we do not believe this will be consistent with the CRA. A recent report by the FDIC notes that, “…there is little evidence that the emergence of new electronic channels for delivering banking services has substantially diminished the need for traditional branch offices where banking relationships are built.”[8]

One Los Angeles based leader who runs a community based organization that would stand to benefit from the Bank’s proposal to reinvest mainly in Los Angeles had the following to say about the Bank’s plan to reinvest deposits from other communities into Los Angeles:

“While we’d love the $$$ for southern California, I’m reminded of how Dorothy Richardson and her neighbors in Pittsburgh first staged a series of “sit-ins” at local banks because of the redlining in their neighborhood.  Every neighborhood matters.  Every family matters.  Out of the strength of her convictions, Dorothy succeeded and the Neighborhood Reinvestment Corporation and NeighborWorks Network were formed.  We must stand for what is right on behalf of all of our neighbors to ensure justice for everyone.  Seems fitting during Black History Month.”

Additionally, the Applicant’s proposed CRA Plan notes that it will designate only one CRA assessment area for full scope review. We note that City National Bank and East West Bank, two banks that have been identified as peers of OneWest, have three and two full scope review assessment areas, respectively. A bank as big as the proposed CITBNA should have more than one full scope review assessment area.

       Conclusion

The regulators must properly weigh the comments of supporters and opponents, scrutinize the foreclosure practices of OneWest Bank and Financial Freedom, fully analyze the extent to which this merger threatens financial stability, and require the bank to negotiate and develop a CRA Plan commensurate with its size and national deposit base, before rubber stamping this proposed merger. We believe this transaction represents a threat to financial stability with huge costs and subsidies, and no public benefit.

Thank you for your consideration of these views. Please feel free to contact me at (415) 864-3980 if you wish to discuss this matter further.

Very Truly Yours,

Kevin Stein

Paulina Gonzalez

cc:           Jan Owen, Commissioner, California Department of Business Oversight

Ivan J. Hurwitz, Vice President, FRB NY, comments.applications@ny.frb.org

David Finnegan, Office of the Comptroller of the Currency, WE.Licensing@occ.treas.gov

All COMMENTERS

[1] Matthew Monks and Elizabeth Dexheimer, “OneWest Seeks Wall Street’s Help Lobbying Yellen on CIT,” Bloomberg, January 8, 2015.

[2] The CFPB study reviewed approximately 1200 reverse mortgage complaints that were filed on its website from December 2011 through December 2104. See, Office of Older Americans, “Snapshot of reverse mortgage complaints: December 2011 – December 2014,” Consumer Financial Protection Bureau, February 2014.

[3] Lisa Greenberg, “NFM sisters chained to home to protest reverse mortgage,” Fox4, January 8, 2015, at http://www.jrn.com/fox4now/news/NFM-sisters-chained-to-home-to-protest-reverse-mortgage-287977331.html

[4] Press release, “Attorney General Martha Coakley Reaches $10 Million Settlement with Subprime Lender Fremont Investment and Loan,” June 9, 2009.

[5] FDIC Letter to CRC Re: Application by CIT Group (CIT) to purchase IMB, the parent company of OneWest Bank, National Association (OWB), and to merger CIT Bank into OWB,” February 5, 2015.

[6] Alain Sherter, “CIT Group: Too Small to Save – Or Not,” MONEYWATCH, July 15, 2009.

[7] Open Secretes, “CIT Group,” Center for Responsive Politics, at: http://www.opensecrets.org/orgs/summary.php?id=D000024786

[8] Press release, “Branch Banking Remains Prevalent Despite Growth of Online and Mobile Banking,“ FDIC, February 19, 2015.

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