-
John Thain had a clear answer for every question analysts posed about CIT's deal for OneWest. His takes on SIFI regulations, the mortgage business and retail banking challenge the conventional wisdom of many bankers.
July 22 -
Banc of California has announced extensive community reinvestment goals as part of its planned purchase of 20 Banco Popular branches in Southern California. The agreement, which appeased a community group that had opposed the sale, shows how much power such organizations wield when it comes to M&A.
September 5 -
Expect more regional banks to pursue deals that put them over the $50 billion-asset threshold in an effort to reap the benefits of implicit government subsidies.
October 30 -
The $44 billion-asset specialty lender viewed its pending purchase of OneWest Bank as its way to get significantly over the $50 billion threshold for systemically important financial institutions. But CIT CEO John Thain is all for a proposal that would raise the SIFI bar higher.
October 28
The proposed merger between CIT Group and OneWest Bank would be one of the first times that bank regulators enable a deal that results in a systemically important financial institution. Given the recent focus on the
In 2009, OneWest a holding company formed by billionaire investors including George Soros, John Paulson and Dell founder Michael Dell purchased the failed IndyMac Bank, which had originated thousands of distressed mortgages. As part of the sale, the FDIC entered into a
Under the agreement, OneWest committed to use federal mortgage modification programs to keep struggling borrowers in their homes when possible. If loan modifications didn't work, the FDIC agreed to share in the cost of failed loans, with OneWest absorbing the first 20% of loan losses (approximately $2.5 billion). Once that threshold was met, the FDIC would pay 80% of the cost for the next 10% of losses, and 95% of the cost for losses beyond that amount.
However, it is unclear if OneWest actually met its obligation to modify loans rather than simply foreclosing. According to data from ForeclosureRadar.com, OneWest foreclosed on over 35,000 homeowners in California, including seniors and their surviving spouses who had reverse mortgages from a subsidiary of OneWest the disarmingly named Financial Freedom. The high number of foreclosures is worrisome, but perhaps not surprising, since nonprofit housing counselors consistently
While the FDIC had 22 opportunities once a quarter since the bank was sold to audit OneWest's compliance with the modification aspect of the loss-share agreements, it is also unclear if it actually did so more than once, in 2011. The results of that audit were not shared publicly. Given the large number of foreclosures and troubling accounts from housing counselors, we believe the public has a right to know if the FDIC ever audited OneWest's compliance with the loss-share agreement, how much money the FDIC has paid OneWest and how much more money the FDIC may yet pay if the merger is approved and the loss share is transferred to CIT and continued.
The FDIC should also share its rationale for continuing the loss-share at a new bank. In 2009, the FDIC could justify this controversial agreement as necessary to preserve confidence in the financial system, unload failed-bank assets and promote loan modifications for struggling homeowners. But in 2014, the FDIC is no longer looking to unload Indymac assets, and investors in OneWest have reportedly
The
Kevin Stein is the associate director of the