Financial Freedom’s legacy reverse mortgage business is continuing to cause a drag on profits for CIT Group, the company that acquired OneWest Bank last year. CIT Group attributed a decline of nearly $100 million in year-over-year quarterly profits relating to Financial Freedom’s discontinued operations, company executives said in a reporting on second quarter earnings this week.
The Livingston, N.J.-based company took a dive in profits, reporting $14.1 million in net income, down from $115.3 million during the second quarter of 2015.
“Despite the impact Financial Freedom had on our financial results this quarter, we made progress advancing our strategic goals,” said CIT CEO Ellen Alemany in an earnings call with analysts this week.
CIT’s Financial Freedom business has been reported as discontinued since the company closed its acquisition of OneWest Bank last year. But despite ongoing efforts to minimize exposure and update its policies and procedures around the business, the losses have been sustained.
CIT is also undergoing a HUD OIG investigation “which began in earnest shortly after the close of the acquisition,” its executives said. “We remain committed to exiting from this business as we continue to execute on the plan we laid out in March.”
During the current quarter, the company recorded additional reserves, due to a change in estimate, of $230 million as a result of the ongoing process to remediate the material weakness.
“We are disappointed that the additional charges arising from the legacy Financial Freedom business, which was part of the OneWest Bank acquisition, offset the improved earnings from continuing operations,” Alemany said in a press release.
CIT acquired the parent company of OneWest Bank in late 2015 in a $3.4 billion cash and stock deal. OneWest became the owner of Financial Freedom in 2009 when IndyMac sold to OneWest. Subsequently, OneWest shut down Financial Freedom reverse mortgage origination channels, including the completion of employee layoffs in mid-2011.
Written by Alana Stramowski