California Reinvestment Coalition comments on CITNA Bank Community Reinvestment

Editor’s note: Earlier this month, CRC submitted the following letter as part of CITNA Bank’s Community Reinvestment Act exam.  For more information on CRC’s concerns with OneWest’s and CIT Bank’s reinvestment histories, visit www.badbankmerger.com.

November 16, 2015

Assistant Deputy Comptroller Robert Phelps
Office of the Comptroller of the Currency
Chicago Midsize Office
1 South Wacker Drive Suite 2000
Chicago, IL 60606

Cindy Tran
CRA Officer
CITBNA, N.A.
888 East Walnut Street
Pasadena, CA 91101

Re:       CRC comments regarding CITBNA CRA and Fair Lending Examination

Dear Mr. Phelps and Ms. Tran,

The California Reinvestment Coalition submits these comments on CIT Bank’s (CITBNA) CRA performance in California. We request that these comments be considered as part of the OCC’s current CRA and fair lending examination of CITBNA. We further request that these comments be placed in CITBNA’s Public CRA File.

The California Reinvestment Coalition (CRC), based in San Francisco, is a nonprofit membership organization of nonprofit 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 financial institutions. CRC promotes increased access to credit for affordable housing and economic development for these communities.

On the heels of a contentious bank merger process that revealed multiple CRA and fair lending concerns raised by a large number of organizations and individuals, we urge the OCC to:

Consider the Extensive Record from the Merger Process

We opposed the Bank’s recent merger in what was one of the most protested bank mergers in recent history. Over 21,000 individuals and over 100 organizations registered concerns. The OCC and the Federal Reserve held a rare public hearing at which a large number of organizations and consumers testified to certain CRA weaknesses and consumer protection failures of the Bank, while also raising a number of fair housing and fair lending concerns.

There were a number of compelling stories of abuse recounted by OneWest and Financial Freedom customers and their families, and a number of compelling stories offered by community development practitioners in the Bank’s assessment area, documenting and lamenting the Bank’s poor CRA performance. We understand that all of relevant information, testimony, comment letters and other evidence presented during the merger process will be considered as part of this exam.

CRC hereby resubmits our eighth comment letter on the merger, attached, which calls for a fair lending investigation into evidence of disparities in the Bank’s foreclosure, lending, branch, REO property maintenance, and reverse mortgage servicing practices. Prior letters raised numerous concerns about the Bank’s poor reinvestment record, its weak reinvestment commitments, and its problematic compliance with consumer protection laws and regulations. We appreciate that the OCC will consider all of these comments, and those of all commenters, during this examination process.

In fact, the OCC conditional approval order suggested that a number of issues raised during the merger were better addressed during the CRA and fair lending examinations of the Bank. In discussing concerns about OneWest Bank’s foreclosure and REO property maintenance practices, the OCC notes it will “continue to assess potential discrimination as part of its supervisory process.”[1] Pursuant to 12 CFR 25.28(c), the results of the OCC’s evaluation of a bank’s CRA performance may be adversely affected by evidence of discriminatory or other illegal credit practices. In that regard, we note the most recently published CRA Evaluation of Bank of America which resulted in a lower CRA Rating for Bank of America in light of fair lending and credit practices concerns and settlements.[2]

Scrutinize and Investigate Questionable Letters of “Support”

While we certainly agree that the OCC should consider all public comments submitted during the merger process, including those of bank supporters and positive comments about the Bank’s performance, we urge the OCC to scrutinize those emails resulting from the Bank’s solicitation of support letters for the merger via its website, which resulted in several form letters being submitted. The OCC on the 2nd page of its merger approval order notes, “Approximately 1,700 of the letters resulted from an email campaign initiated by CITG and OWB seeking support for the merger.”[3]

Yet, as CRC has noted previously, we have come to understand that a number of these alleged “supporters” may not have supported the merger at all, and we are very much concerned about the prospect that the public comment process was manipulated and that certain “letters of support” were fraudulent.

Early on, CRC did notice certain irregularities in the email addresses expressing support for the Bank. Then CRC received a disturbing email on September 21, 2015. An individual, apparently under the misunderstanding that CRC supported this merger, expressed dismay that a letter of support for the OneWest CIT Bank merger was sent to the regulators in his name. He decried the “bogus email” support letter, and noted it “is not mine and I did not authorize or send this email, and I did not authorize for you to use my name and address to be used for any support of One West and CIT Merger, I have no affiliation or whatsoever to this companies and would like you to stop using my name, address or email address…”

Most troubling, the individual indicates that somebody created a yahoo email address using his full name, without his knowledge. It appears that this same email was also sent to the OCC and the Federal Reserve Board. It is unclear what steps if any the OCC and the Federal Reserve plan to take in response to this email.

This email is shocking and suggests that one or more people may have manipulated the public comment process and committed a fraud on the federal regulatory agencies which rely on public input to inform their deliberations.  In follow up “spot checks” of about 150 email addresses attributed to the petition organized by OneWest’s CEO, at least 25 of the email addresses appear to be non-existent.

In an attachment of 593 petitions in support of OneWest’s call to not hold a public hearing, posted on the Federal Reserve’s website, 100% of the petition signers had Yahoo email accounts- an oddity that adds to our concerns (Yahoo has, approximately, a 3% market share for email accounts).  We further understand that when an email was sent to these individual email addresses, 30%, or 180 of the 593 emails, bounced back, and for the handful of people who replied to the email, some may have indicated that they actually had not supported the merger as their “petitions” purportedly suggested.

Moreover, if the “time stamps” on the emails are accurate, there was an extremely large number of people who cared enough about this merger to sign onto their computers in the middle of the night- with a large number of emails being sent to the Federal Reserve and OCC around 2am on the night of February 13, 2015.

It occurs to us that it is only happenstance that the individual noted above discovered that his name was used improperly and fraudulently, and that it is not to be expected that this information would have ever found its way to us or to the regulators. In other words, if other people had their names used without their authorization, and if unauthorized Yahoo email accounts were created on their behalf, this fraud may have gone undetected. There is no reasonable explanation for all of these oddities occurring relating to “support” letters sent via the Bank’s website.

We accuse no specific person or organization of wrongdoing. But at the same time we are greatly disturbed at the possibility that the OCC and the Federal Reserve community input process may have been compromised. The CRA is a law that allows for and encourages community participation and in so doing, allows for a community perspective to be considered by regulators as they determine how best to supervise, regulate and oversee financial institutions.

We urge the OCC and the Federal Reserve to investigate this matter further, and we would hope that CITBNA would likewise be interested in helping regulators get to the bottom of this. How many letters of support were submitted to the regulators without the knowledge of the purported author? Who is responsible? And what are the regulators going to do about it in order to send the message that manipulating a public process is a serious offense, and to ensure this does not happen again?

Do the Federal Reserve and OCC public comment email systems (and OWB website) have safeguards to “catch” such oddities?  A similar issue occurred in the recent “net neutrality” debate, and the system used to process Congress’ email was able to catch fraudulent emails.

Consider New CRA Performance Data for CITBNA Which Shows Continuing Problems

New data made public and analyzed after the conditional merger approval order further demonstrate that CITBNA (CIT and OWB) has not been meeting community credit needs.

Philanthropy. As one example, according to the OCC’s conditional approval order, the level of OWB CRA qualifying contributions in its assessment areas since its last Performance Evaluation appears to have gone done for each of the last 4 years:

  • $1,675,500 in 2012;
  • $1,127,900 in 2013;
  • $1,054,000 in 2014; and
  • $302,000 as of May 2015.[4]

CITBNA apparently commits to increase the size of annual contributions to $5 million per year, which is positive. Yet, given the Bank’s presence and size in California and data received from 17 California banks, we estimate that 12 or 13 other banks devote a higher percentage of their deposits for CRA purposes than will CITBNA under its new CRA commitment. Again, CITBNA lags its peers.

CRC urges all banks to devote at least .025% of California deposits towards philanthropy in California, and that 50% of all contributions should support critical housing and economic development activities. OWB’s past performance and CITBNA’s most recent commitments do not suggest it will meet these benchmarks.

Affordable Housing. CITBNA has identified affordable housing as a priority need in its assessment area. Yet the Bank notes that “mortgage lending will not be the primary focus of CITBNA,” that Low Income Housing Tax Credits “will not be appropriate investments for CITBNA,” and that “multifamily lending historically has not been a key part of its loan origination strategy.”[5] Which leads one to wonder how CITBNA plans to address the critical community need it has identified. The Bank noted that it originated $89 million in CRA-qualifying multifamily loans in LMI census tracts since its inception, but it does not specify whether these loans would qualify as Community Development loans for CRA purposes, and whether these loans financed the development or preservation of deed restricted affordable housing (see below for a further illustration of how multifamily lending does not allows help, and can actually harm, low income communities).[6] We trust this information will be forthcoming in the bank’s CRA exam results.

Community Development. We urge the OCC to continue to scrutinize activities for which the Bank seeks community development credit. We note again that one of the Bank’s Responses to an Additional Information Request during the merger process revealed that OneWest overstated its community development loan activity by a whopping $75 million in an October 30, 2014 letter and had to revise and reduce its projections based on feedback from its regulator. The record should be clear as to what kinds of lending OneWest improperly sought to classify as community development lending, and more information should be provided on what kinds of loans OneWest still counts as “community development lending.”

Relatedly, CRC recently became aware that certain other banks (not necessarily OWB or CITBNA) were seeking CRA community development credit for loans made to investors to purchase small, Rent Controlled buildings in LMI tracts, without the regulator (or perhaps the lenders) knowing that the investor purchasers plans were to evict all of the tenants (mostly seniors, low income, long term, and often, of color) and to convert the low cost rental housing into expensive homeownership Tenancies in Common. Regulators must scrutinize purported community development lending and investments to ensure that these activities actually benefit communities.

Additionally, the Bank in its Draft CIT Bank, NA Community Benefits Plan sets an investment goal that is opaque, in that it targets investments to 8% of Tier 1 Deployed Capital. CRC urges all institutions to devote at least .25% of California deposits for community development investments each year. Additionally, CITBNA should not rely on Mortgage Backed Securities to meet its community development investment targets, as MBS are generally not impactful or value added for community development activities.

Home Lending. In 2014, OneWest appears to have originated only 102 first lien, home purchase or refinance loans in California. Of these 102 loans:

  • Only 1 was originated to an African American borrower
  • Only 6 were originated to Asian borrowers
  • Only 7 were originated to Latino borrowers
  • Only 14 loans were originated to LMI borrowers, compared to 77 to upper income borrowers
  • Only 38 loans were originated in neighborhoods of color, which is not impressive for a bank with an assessment area focused around Los Angeles
  • Only 6 loans were originated in LMI neighborhoods.

These home lending numbers are very low in terms of overall home lending originated to California homeowners and homebuyers, and also well below the proportional lending by the industry as a whole in California. For all HMDA reporters in 2014 in California, lending to:

  • African American borrowers comprised 2.8% of all loans, compared to 1% for OWB
  • Asian borrowers comprised 13.5%, compared to 6% for OWB
  • Latino borrowers comprised 16.8%, compared to 7% for OWB
  • Neighborhoods of color comprised 47%, compared to 38% for OWB
  • LMI neighborhoods comprised 16%, compared to 6% for OWB.

The Bank only approximated the industry benchmark for lending to LMI borrowers, at 14% of all loans. Yet the industry as a whole doubled CITBNA’s proportional lending to African American, Asian American, and Latino borrowers, as well as to Low and Moderate Income neighborhoods, raising both fair lending and CRA concerns.

Small Business Lending. For small business lending, OneWest appears to have originated only 70 CRA reportable loans in 2014 in California, down from 88 loans in 2013:

  • Only 1 of these loans was in an amount less than $100,000
  • Only 10 of these loans were in amounts of $100,000 to $250,000
  • Fully 59 of these loans were in amounts over $250,000
  • Only 26 loans, or 37% of “small business” loans, were made to smaller businesses with less than $1 million in revenue.

For CIT small business lending in 2014, the Bank originated 448 small business loans in California, offering loans in lower loan sizes (this is positive), but not to smaller businesses (this is not positive):

  • 291 of these loans were in amounts less than $100,000
  • 126 loans were in amounts between $100,000 and $250,000
  • 31 loans were in amounts over $250,000
  • Yet zero of these “small business” loans were to small businesses with under $1 million in gross revenue.

Of 518 CRA reportable small business loans in 2014 from OWB and CIT, only 26 loans, or a paltry 5%, were to smaller businesses, those with less than $1 million in revenue. CRC urges all institutions to strive for fully 50% of all small business lending to be for businesses with under $1 million in revenue.

Branches and deposits. According to publicly available branch and deposit data analyzed via the CRA Wiz program for 2014:

  • Of 74 CITBNA California branches, only 8, or 10.8% of branches were in LMI neighborhoods. This is even less than the low percentages discussed during the merger. Perhaps this reflects a lag in data reporting, and the actual proportion of branches in LMI neighborhoods is slightly higher. Regardless, the industry in California has roughly twice the proportion of branches in LMI communities than does CITBNA.
  • Of 74 CITBNA California branches, only 31, or 42% of branches are in neighborhoods of color, even though 57% of deposits derive from neighborhoods of color.

Taken together, the data do not reflect the performance of a Bank that is helping to meet community credit needs: almost no home lending to LMI borrowers and neighborhoods, miniscule small business lending to smaller businesses, no multifamily loan products, plans to reduce investments in Low Income Housing Tax Credits which help finance affordable housing development, decreasing philanthropy through May of 2015, low branch presence in LMI communities (even compared to peers), but continuing foreclosures and fair lending concerns.

Consider the Large Number of Consumer Complaints That Have Been Filed Against CITBNA

One important measure of how well a Bank is meeting community credit needs can be found in consumer complaint data. The CFPB Consumer Complaint Database represents a primary, accessible, uniform way in which consumers can express their concerns about bank performance.

A review of the CFPB database reveals that nearly 1,400 complaints have been filed by consumers with the CFPB against CITBNA (CIT and OWB) since December 2011. Most of these complaints (90%, or 1,270 complaints) are related to CITBNA’s “Mortgage” products; of which 209 are related to “reverse mortgages.”  It appears that over 50 reverse mortgage complaints have been filed with the CFPB against OWB and CITBNA in 2015, since the CFPB’s initial data reporting of complaints through 2014.

CRC has filed a lawsuit challenging HUD’s denial of our Freedom of Information Act (FOIA) fee waiver request in which we are seeking additional information about the number of complaints filed with HUD against OneWest relating to its reverse mortgage servicing performance, and we will be happy to share this data if we prevail in obtaining this information.

During the merger process, the FRB, via an Additional Information Request, sought data from the Bank about complaints it had received directly from consumers. The Bank reported receiving directly an astonishing 812 complaints, even though the Bank chose to report on complaints received only AFTER it sold most of its servicing rights. The OCC should determine the number of complaints received directly by the Bank during the time frame covered by this exam, and make that information part of the record and its deliberations as to whether the Bank has been meeting community credit needs.

The large number of complaints filed with the CFPB, as well as the number of complaints filed with the OCC and CITBNA directly, should be reflected in the Bank’s CRA Performance Evaluation. As we have urged with PEs of other banks, the OCC should confirm in CITBNA’s Performance Evaluation the number, nature and disposition of OCC complaints.

Further, the OCC, through this examination process and its other supervisory powers, must ensure that CITBNA and its affiliates are complying with fair housing, fair lending, and consumer protection laws, including the California Homeowner Bill of Rights and HUD HECM regulations such as Mortgagee Letter 2015-15 regarding Non Borrowing Spouses.

Consider the Harm Imposed on Communities by CITBNA

Past foreclosures. During the merger process, CRC and many other commenters pointed to the harm imposed by OWB on California communities as a result of 36,000 foreclosures, including 2,000 on reverse mortgage seniors, widows and their families.

Future foreclosures. And yet we know that CITBNA will be foreclosing on numerous additional families. A Freedom of Information Act request to the FDIC by CRC yielded the astonishing confirmation that the FDIC has paid over $1 billion to OWB under the loss share agreement to reimburse OWB for the costs of foreclosure, consistent with the agreement. But we also learned that the FDIC estimates another $1.4 billion in additional loss share payments will yet be made to CITBNA, presumably to reimburse the Bank for the costs of more than 36,000 additional foreclosures in California and untold numbers nationally.

Failure to repay $2.3 Billion in TARP. Additionally, we note once again the harm caused to U.S. Taxpayers by CIT Group in taking $2.3 billion in TARP funds, before declaring bankruptcy and wiping out its obligation to repay this money.

Reducing federal tax liability. Adding insult to injury, comments by CIT Group executives to investors suggest that the Bank intends to use its Net Operating Losses from the bankruptcy to offset expected profits from the recent merger in order to significantly reduce its federal tax obligations in ensuing years.

Reverse mortgage concerns and Non Borrowing Spouses. And of course, we reiterate concerns about potential servicing violations suffered by reverse mortgage borrowers, Non Borrowing Spouses (widows and widowers), and their families, as testified to and commented on as part of the merger process. We urge the OCC (and HUD) to closely monitor the Bank’s implementation of, and compliance with, HUD Mortgagee Letter 2015-15.

Evading HBOR accountability. We again call on the OCC to clarify that CITBNA should not invoke preemption as a way to evade accountability for alleged violations of California’s Homeowner Bill of Rights which is meant to protect residents of the Bank’s CRA assessment area from unlawful and unnecessary foreclosures. Avoiding responsibility and accountability in this way harms LMI communities and borrowers and leads to lost assets.

Confirm That the Bank Needs to Develop a Stronger CRA Plan

The Bank submitted a DRAFT CRA Plan in advance of the February 26 merger hearing. Indications from the Bank’s Community Needs Survey and the Community Day event held on October 6, 2015, suggest the Bank is NOT increasing its overall commitment of $5 billion in CRA activity over 4 years.

Under the conditional approval order, the Bank was supposed to have submitted its revised CRA Plan to the OCC on October 19, 2015. This plan has not been made public, though at the Community Day event the Bank indicated it would share with the public the revised CRA Plan, as well as that day’s power point presentation, if advised to do so by its newly formed Community Advisory Board. Presumably, either the Bank did not seek input from the CAB, the Bank did not heed the counsel of the CAB, or the CAB did not urge the Bank to be transparent with its CRA Plan.

If it is true that the Bank’s revised Plan is substantially the same as its draft Plan in terms of overall commitment, the Bank’s CRA Plan will be roughly ¼ the size of the CRA commitment of a much smaller (and younger) Banc of California, and roughly ½ the size of the CRA commitment of CITBNA’s peer, City National Bank, which despite having fewer deposits in California, committed to $11 billion in CRA activity over 5 years.

In any event, CITBNA’s performance in 2014 and going forward would leave it amongst the worst performing CRA banks in California, based on data received and analyzed by CRC. CRC and its members utilize a set of benchmarks to determine how well a bank is meeting community credit needs. Banks can demonstrate their performance in two ways: by 1) entering into a Community Benefits and Reinvestment Plan that specifies in a clear and transparent manner the bank’s CRA goals over a multi-year period; and 2) providing clear data on the bank’s CRA performance.

Of seventeen (17) California banks which 2014 data, information and reinvestment commitments we reviewed and analyzed, CITBNA would rank BELOW 12 of these institutions in terms of annual percentage of deposits committed to CRA purposes, using estimates from CITBNA’s draft CRA commitment. Of the 5 banks which currently appear to devote less of their proportional deposits for community reinvestment on an annual basis, 3 have not yet provided all of their data and could very well leapfrog CITBNA, moving CITBNA further down the list of reinvestment banks in California.

And this analysis considers 2014 actual performance by the other banks compared to future commitments by CITBNA. So, the few banks who did less in 2014 than CITBNA proposes to do in 2016, may yet exceed CITBNA’s actual CRA performance in 2016 and beyond. CITBNA did not provide data to CRC this year (for 2014 performance) or last year (for 2013 performance).

Conclusion

CITBNA’s overall performance in California Needs to Improve, and that is the CRA rating the Bank deserves. Given the size and reach of CITBNA, and the harm it has caused to communities via thousands of foreclosures and weak reinvestment, CITBNA has not met community credit needs. CITBNA now has an opportunity to turn the page, enhance its CRA Plan and be a constructive force for positive neighborhood revitalization and wealth accumulation for Southern California’s LMI communities and communities of color. But it should not be rewarded for poorly serving and failing to adequately commit to these communities. The Banks’ CRA Rating should reflect poor CRA performance, as well as any fair lending or fair housing violations established.

Thank you for the opportunity to comment. If you have any questions, you can reach me at (415) 864-3980.

Very Truly Yours,

Kevin Stein

Associate Director

Encl:    CRC’s 8th Comment Letter in Opposition to CIT/OWB merger

Cc:       Thomas J. Curry, Comptroller, OCC

Janet Yellen, Chair, Federal Reserve Board of Governors

Richard Cordray, Director, CFPB

Patrice Ficklin, CFPB

Barry Wides, Deputy Comptroller, OCC

Beth Castro, OCC Community Affairs

[1] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, p. 36, footnote 1, p. 37, footnote 73.

[2] Office of the Comptroller of the Currency, PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Bank of America, N.A., Charter Number:  13044, 100 North Tryon Street, Charlotte, NC 28202m December 31, 2011, available at: http://www.occ.gov/static/cra/craeval/oct14/13044.pdf (see page 14, Fair Lending or Other Illegal Credit Practices Review).

[3] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, p. 2.

[4] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, pp. 12, 13.

[5] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, pp. 20, 17, 21.

[6] Id. at 22.