Subprime loans were big business for struggling lender CIT

Introduction

Troubled lender CIT Group found itself on the brink of bankruptcy Monday, as concerns regarding its liquidity and debt mounted. The company describes itself as “a leading provider of financing to small businesses and middle market companies.” But its current precarious position may be attributable in part to the more than $5.6 billion in subprime loans CIT made between 2005 and 2007.

CIT Group closed its home lending division in August 2007. Before that business shut down, however, the CIT group was a significant presence in the subprime mortgage market. According to the Center for Public Integrity’s analysis of mortgage records, CIT made at least $5,673,252,000 in subprime loans, likely putting it among the top 35 subprime mortgage lenders nationwide from 2005 through 2007. By late 2007, those loans were not performing well.

At the end of June 2007, 6.6 percent of the loans in the company’s managed home loan portfolio were delinquent by 60 days or more, according to financial statements. By March 30, 2008, almost 13 percent of the portfolio was 60 days delinquent. Fewer than 50 percent of the loans in the portfolio were fixed-rate loans, suggesting that many of CIT’s loans were adjustable-rate mortgages, which have proved particularly susceptible to trouble. CIT reported a net loss of more than $2 billion from the discontinued home lending division in its second quarter 2008 results.

In early 2009, CIT Group had $75.7 billion in assets and $68 billion in liabilities, according to its first quarter 2009 results. The company is now in discussion with Treasury officials, regulators, and members of Congress, attempting to stabilize its operations and avoid bankruptcy, according to company press releases and published news reports. As news reports questioning the company’s survival hit front pages Monday, CIT’s share price was trading at $1.35, down from a September high of $13.00.

CIT has already received substantial support from the Treasury, receiving $2.33 billion from the Troubled Asset Relief Program, or TARP, on New Year’s Eve, 2008. The lender is now “in active discussions” about its options, including its pending application to receive funds through the FDIC’s Temporary Liquidity Guarantee Program, as well as other possibilities to improve its liquidity.

But as the company notes, “There can be no assurance that any of CIT’s discussions with the government will result in any regulatory action.”