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CIT Touts Sale of ‘Legacy’ Financial Freedom, Reverse Mortgage Portfolio

Executives at CIT Group, Inc. (NYSE: CIT) were upbeat about the company’s decision to sell off its Financial Freedom reverse mortgage portfolio, calling the business a “legacy issue” on its quarterly earnings call this week.

“Earlier this month, we addressed another key legacy issue for the company in reaching an agreement to sell the Financial Freedom reverse mortgage servicing business, as well as the portfolio of reverse mortgage loans,” CIT chairwoman and CEO Ellen Alemany said, according to a transcript of the Tuesday call.

The New York City-based company announced plans to sell Financial Freedom and its $900 million Home Equity Conversion Mortgage portfolio on October 8, with neither the buyer nor the purchase price disclosed. At the time, CIT positioned the move as a way to shed a non-core asset and focus on its commercial banking and deposit franchises.

Alemany expanded on that theme on the conference call.

“While the sale of the reverse mortgage loan portfolio will reduce our revenue stream, we believe selling these assets is in the best interest of the company, as it will reduce future risks and enable us to focus our attention and resources on our core businesses,” she told investors.

After the deal closes, CIT will see declines in interest income of about $20 million per quarter after accounting for transaction costs, chief financial officer John Fawcett said.

The loans involved in the sale had heavy discounts with average yields of 9% to 10%, according to Fawcett, with no associated direct operating costs.

“However, the sale of Financial Freedom and this mortgage portfolio is a significant step in simplifying CIT, enabling us to focus on our core franchises,” Fawcett said.

Fawcett confirmed that the deal included the Financial Freedom reverse mortgage servicing business, servicing rights, and reverse mortgage loans, as well as related servicing assets, liabilities, and secured borrowings. CIT expects the entire process to be wrapped up in the second quarter of next year.

Alemany also pointed to a recent deal to sell off European railcar-leasing company NACCO as part of the long-term strategy; CIT continues to operate a North American railroad entity.

The deal marks CIT’s exit from the reverse mortgage world after acquiring Financial Freedom in 2015; the HECM servicing arm came as part of the acquisition of OneWest Bank for $3.4 billion in cash and stock. Financial Freedom has existed as a servicing entity since 2011, when OneWest shuttered its forward and reverse HECM origination channels.

Written by Alex Spanko