US Treasury Department Investigating Change Company
The U.S. Treasury Department is investigating Change Company, the largest issuer of exotic mortgages, regarding undisclosed complaints. Change is also battling to maintain its Community Development Financial Institution status.
Troy D. Hanson
September 21, 2023
The U.S. Treasury Department's law enforcement division is conducting an investigation into the Change Company, a California-based home loan firm. With the help of its community-lender certification from the Treasury, Change has emerged as the nation's largest issuer of exotic mortgages, amassing a $6 billion business.
A special agent from the Treasury's Office of the Inspector General has requested emails, text messages, and other materials related to a complaint regarding Change. However, specifics about the nature of the complaint remain undisclosed. When asked for comment on the potential investigation, an attorney representing the Inspector General's office stated that the policy prohibits them from providing information on ongoing work.
Kristin Tahler, an attorney representing Change, acknowledged that it is the Inspector General's duty to inform Congress about issues and deficiencies concerning the administration of Treasury programs and operations.
The involvement of a special agent from the Inspector General's office suggests that this inquiry, previously unreported, is being handled by the investigations unit responsible for cases involving serious suspicions of misconduct. Eric Thorson, former Treasury Inspector General, confirmed this and mentioned that a separate unit manages routine audits.
If the Inspector General's office gathers sufficient evidence, it can refer the case to the U.S. attorney's office for potential civil or criminal prosecution.
In addition to facing scrutiny from the Treasury and the SEC, Change is embroiled in a legal battle to maintain its status as a Community Development Financial Institution (CDFI). This designation, bestowed by the CDFI Fund within the Treasury, was temporarily revoked last month after officials determined that Change had not adequately catered to underserved groups with its lending practices.
Change has argued in court filings that it has fulfilled its lending commitments and criticized the CDFI Fund's assessment of its performance as flawed.
Change: Empowering Underserved Communities Through Mortgage Lending
Change, a leading financial institution, made a significant impact in 2018 when it obtained its certification as a Community Development Financial Institution (CDFI). As part of this certification, Change committed to allocating at least 60% of its lending to support Hispanic, Black, and low-income borrowers, as well as borrowers residing in designated low-income neighborhoods.
The CDFI designation provided Change with special flexibility when it came to writing mortgages, which played a vital role in the firm's remarkable growth. In fact, by 2022, Change had become the nation's largest originator of nonqualified mortgages, as reported by Scotsman Guide, a trusted publisher in mortgage-business data. Nonqualified mortgages offer unique features such as interest-only periods and balloon payments.
Although Change's mortgage-writing flexibility as a CDFI aimed to increase lending to underserved groups, recent reports indicated that even wealthy borrowers like actor Johnny Depp and NFL legend Tony Gonzalez had benefited from this leeway.
Addressing these concerns, Change assures that its lending to wealthy individuals does not diminish its commitment to underserved borrowers. However, the firm recently lost its CDFI certification after failing to meet the required lending targets. Change has filed a lawsuit in an attempt to regain its status, and a U.S. District Court judge in California has temporarily suspended the decertification pending a mid-December hearing.
Change's attorney, Thaler, expressed confidence that all issues will be resolved by the scheduled hearing. It is worth noting that former employees of Change have come forward, indicating that they have been questioned by investigators from the Securities and Exchange Commission regarding the accuracy of the firm's government disclosures concerning mortgages provided to Black and Hispanic borrowers. These employees reported that certain remarks made by Change managers seemed to imply an encouragement to misrepresent racial and ethnic identities on mortgage forms.
Change firmly denies any allegations that it encourages misrepresentations. The firm remains dedicated to serving its customers with integrity and transparency.