The CDFI Fund, part of the U.S. Treasury Department, administers a special lending program intended to help underprivileged borrowers.
Chip Somodevilla/Getty Images
Change Lending has a tentative deal with the U.S. Treasury that would keep the firm enrolled in the agency’s special program for community lenders.
Under the agreement, as spelled out in an Oct. 31 letter from a Department of Justice lawyer, Change would drop its lawsuit challenging its decertification as a Community Development Financial Institution. The Department of Justice represented Treasury in the case.
The Treasury unit that administers the program, the CDFI Fund, would in turn agree to drop its finding in August that Change wasn’t meeting its required lending targets to underserved groups. Change had challenged that conclusion, and a District Court judge had put the decertification on hold pending further hearings.
The agreement, which is subject to some additional approvals from Treasury, would require Change to next apply for recertification as a CDFI in January 2025, according to the letter. CDFIs are typically required to apply for recertification annually.
Change, which provided a copy of the letter to Barron’s, declined to provide additional details about the timing of the recertification requirement and other aspects of the agreement.
A CDFI Fund spokesman declined to comment, referring questions to the Department of Justice, which didn’t respond to requests for comment.
“We are pleased to have resolved any misunderstandings with the CDFI Fund and appreciate the CDFI Fund’s collaborative approach and willingness to agree to this settlement in principle,” Change Lending CEO Carlos Salas said in a statement on the firm’s website. “Change is proud to be certified as a CDFI and to continue our mission.”
The CDFI Fund informed Change in August that it determined through a review of its lending records that it hadn’t been meeting its targets for CDFI status and revoked its certification, according to documents filed by Change as part of its lawsuit challenging that decision.
Change argued in court filings that it has been meeting its lending commitments and that the CDFI Fund’s analysis of its performance was flawed.
The Department of Justice wrote to Change’s attorney this week that the tentative agreement “should accommodate your client’s challenges to the CDFI certification decision.”
Change Lending is a subsidiary of the Anaheim, Calif.-based Change Company, which also holds CDFI status. The Change Company was founded by former Banc of California CEO Steven Sugarman.
Change’s CDFI designation has given the company special flexibility in terms of the mortgages it is allowed to write, helping to fuel its growth. In 2022, it was the nation’s biggest originator of nonqualified mortgages, according to Scotsman Guide, a publisher of mortgage-business data. Nonqualified mortgages include features such as interest-only periods and balloon payments.
Separate from the CDFI Fund’s past action, investigators from both the Securities and Exchange Commission and the Treasury’s law-enforcement arm are also looking into Change, Barron’s has reported. The agencies haven’t confirmed or denied the investigations.
A Barron’s analysis, which relied on anonymized loan records tracked by the Consumer Financial Protection Bureau, indicated that the company underperformed the industry in increasing lending to Black borrowers, and that only a small percentage of its loans in key markets were affordable to people with low incomes.
Change has said in its response to Barron’s questions that CFPB data can’t be used as a “proxy for CDFI purposes because the methodologies are inconsistent and the reporting is inconsistent.”
Change has said it is making efforts to improve its lending within the Black community and that its lending to wealthy borrowers doesn’t diminish its commitment to underprivileged ones.
In response to questions about the SEC’s apparent investigation, Change has said it is the victim of dirty tricks by a former employee. It has said it embraces the oversight from Treasury’s inspector general.
Write to Jacob Adelman at [email protected]
Read the full article here