CIT Discloses Material Weakness at Unit, Delays Annual Reportby
Control deficiency relates to acquisition of OneWest Bank
CIT plans to file annual report on or before March 15
CIT Group Inc., the commercial lender run by John Thain, found a material weakness in the accounting of a mortgage business, causing the company to delay the filing of its annual report to the Securities and Exchange Commission.
The finding relates to the company’s Financial Freedom reverse-mortgage servicing business at IMB Holdco, the parent company of OneWest Bank NA, the New York-based firm said Tuesday in a regulatory filing. CIT said it plans to complete the annual report on or before March 15.
Thain, who’s stepping down as chief executive officer at the end of March, has been rebuilding CIT after the financial crisis and struck a deal to purchase Pasadena, California-based lender OneWest to diversify revenue and give the firm more access to retail deposits. OneWest had been facing an enforcement action from the Office of the Comptroller of the Currency over foreclosure practices, which was terminated after the deal was approved.
The material weakness existed in the business’s internal controls over financial reporting related to the HECM Interest Curtailment Reserve, CIT said in the filing.
“Specifically, controls are not adequately designed and maintained to ensure the key judgments and assumptions developed from loan file reviews or other historical experience are accurately determined, valid and authorized; the data used in the estimation process is complete and accurate; and the assumptions, judgments, and methodology continue to be appropriate,” CIT said in the filing.
The company plans to implement a data-quality control program, improve controls over documentation of data sources and simplify the reserve-estimation process, it said in the filing. CIT’s acquisition of the bank was delayed for almost a year amid scrutiny about how the combination might create another too-big-to-fail lender.