CIT Group Inc., the firm now led by former Merrill Lynch chief John Thain, took a hit for hundreds of millions of dollars on its legacy reverse mortgages.
Financial Freedom, the reverse mortgage lending subsidiary of New York-based CIT, was once the largest reverse mortgage lender in the country.
In 2005, Financial Freedom Senior Funding Corp. was a subsidiary of IndyMac Bank FSB. That year, it reported $2.9 billion in reverse mortgage originations.
At the time, it claimed to be “the largest originator of reverse mortgages in the United States.”
In July
2008, as the financial crisis was gaining steam, there was a run on deposits at IndyMac, and it became the second-largest financial institution to fail at the time.
The Federal Deposit Insurance Corp. was named receiver of IndyMac, and renamed the federally controlled entity IndyMac Federal Bank FSB.
In March 2009,
a consortium of private investors with ties to firms like Paulson & Co. acquired IndyMac through OneWest Bank FSB.
New York-based CIT acquired OneWest in August 2015.
CIT
said in its second-quarter 2016 earnings report that its losses from discontinued operations ballooned to $167 million from $5 million in the first quarter.
Discontinued operations are predominantly third-party reverse mortgage servicing known as Financial Freedom.
“As disclosed in CIT’s Form 10-K for fiscal year 2015, CIT determined that there was a material weakness related to the home-equity conversion mortgage interest curtailment reserve associated with this business,” the statement said. “During the current quarter, as a result of the ongoing process to remediate the material weakness and taking into consideration the investigation being conducted by the Office of Inspector General for the Department of Housing and Urban Development, the company recorded additional reserves, due to a change in estimate, of $230 million.”
The financial services firm reported $14 million in net income, plunging from $147 million three months earlier and $115 million one year earlier.
