Change Lending, a financial institution, has come to a tentative agreement with the U.S. Treasury that would allow the firm to remain enrolled in the agency’s special program for community lenders.
Lawsuit Challenging Decertification
According to an Oct. 31 letter from a Department of Justice lawyer, Change Lending would drop its lawsuit against its decertification as a Community Development Financial Institution (CDFI) as part of the agreement. The Department of Justice represented the Treasury in this case.
Mutual Agreement Reached
In return, the CDFI Fund, the unit responsible for administering the program, would withdraw its findings from August, where it concluded that Change Lending was not meeting its required lending targets for underserved groups. Change Lending had previously challenged this determination and received a temporary suspension of its decertification by a District Court judge pending further hearings.
Additional Approvals Required
This tentative agreement, which is still subject to further approvals from the Treasury, would then require Change Lending to reapply for recertification as a CDFI in January 2025. Typically, CDFIs must apply for recertification on an annual basis.
Limited Details Disclosed
Although Change Lending provided a copy of the letter to the press, they declined to provide specific details regarding the timing of the recertification requirement and other aspects of the agreement.
A spokesperson for the CDFI Fund declined to comment on the matter and referred all inquiries to the Department of Justice. Unfortunately, requests for comment from the latter went unanswered.
Resolution and Appreciation Expressed
Change Lending’s CEO, Carlos Salas, expressed gratitude for the resolution in a statement posted on the firm’s website. Salas acknowledged the collaborative approach and willingness of the CDFI Fund to reach a settlement.
“Change is proud to be certified as a CDFI and to continue our mission,” Salas stated.
Background on the Decertification
The CDFI Fund initially informed Change Lending in August that, based on a review of its lending records, it had failed to meet the necessary targets for CDFI status, leading to the revocation of its certification. In response, Change Lending argued in court filings that it had indeed fulfilled its lending commitments and that the evaluation conducted by the CDFI Fund was flawed.
The Department of Justice Supports Change’s Challenges to CDFI Certification Decision
The Department of Justice (DOJ) recently reached out to Change’s attorney regarding the tentative agreement, affirming that it should address the challenges presented by Change Lending’s certification decision as a Community Development Financial Institution (CDFI).
A Closer Look at Change Lending and The Change Company
Change Lending operates as a subsidiary of The Change Company, headquartered in Anaheim, California. The Change Company, founded by former Bank of California CEO Steven Sugarman, also holds CDFI status. This designation has granted Change special flexibility in its mortgage operations, contributing to its remarkable growth. In fact, in 2022, it emerged as the nation’s largest originator of nonqualified mortgages, as reported by Scotsman Guide, a reputable publisher of mortgage-business data. Nonqualified mortgages typically feature interest-only periods and balloon payments.
Ongoing Investigations into Change
Aside from the actions taken by the CDFI Fund, both the Securities and Exchange Commission (SEC) and the Treasury’s law-enforcement arm have initiated investigations into Change, as revealed by n/a. While neither agency has officially confirmed or denied these investigations, they remain ongoing.
Dissection of Change’s Lending Performance and Market Reach
An analysis conducted by n/a, relying on anonymized loan records tracked by the Consumer Financial Protection Bureau (CFPB), suggests that Change underperformed in terms of increasing lending to Black borrowers compared to the industry average. Moreover, it was found that only a small percentage of their loans in key markets were affordable for individuals with low incomes.
In response to inquiries about these findings, Change clarified that CFPB data cannot be deemed a reliable “proxy for CDFI purposes” due to inconsistent methodologies and reporting standards.
Commitment to Improving Lending Practices
Change asserts that it is actively working towards enhancing its lending practices in the Black community. It firmly believes that its provision of mortgages to wealthier borrowers does not diminish its commitment to underprivileged individuals.
Response to SEC Investigation Claims
Regarding the apparent investigation by the SEC, Change contends that it is a victim of malicious actions orchestrated by a former employee. The company declares its willingness to cooperate with the oversight conducted by Treasury’s inspector general.