By Matthew Russell Lee, Patreon
SOUTH BRONX / SDNY, Aug 1 - Back in April 2021, Fair Finance Watch and Inner City Press predicted that the proposed merger of New York Community Bank and Flagstar would flounder, on disparate lending and legal compliance failures.
Now a lawsuit against Flagstar's CEO proves the later, regarding not only the banks and its regulators but also its law firms. "In March 2023, NYCB bought a large segment of the failed Signature Bank and the board installed DiNello as chief executive. The bank’s anti-money laundering system flagged a client for illegal “structuring” of deposits. After Marrazzo’s investigation confirmed at least three instances of the activity, he informed DiNello that the account needed to be closed. DiNello urged Marrazzo to keep the account open and suggested informing the client about the investigation – a violation of federal regulations, the complaint noted. Marrazzo closed the account, but later discovered DiNello had personally contacted the client about their “gambling problem,” according to the lawsuit. This communication may have constituted illegal “tipping,” according to the suit, and violated the Bank Secrecy Act. When Marrazzo defended his actions, DiNello explicitly threatened, “I would fire you if you did [it again],” according to the complaint. Following this incident, Marrazzo was excluded from executive meetings, the complaint indicated.
In early 2024, during a video meeting with law firm Skadden Arps, Slate, Meagher & Flom, where material nonpublic information was discussed, DiNello had “a clearly-visible junior NYCB employee sitting on his lap and rubbing his head.” Another executive who witnessed it, reported the incident to Marrazzo as a whistleblower complaint, providing screenshots as evidence, raising two concerns: a human resources issue related to a potentially inappropriate workplace relationship; and a regulatory one about discussing sensitive, nonpublic information in the presence of a junior staff. Marrazzo reported the incident to the chair of the audit committee, and outside counsel from the law firm Cravath, Swaine & Moore investigated the matter. Despite the investigation, DiNello faced no disciplinary action. Nor regulator action.
Fair Finance Watch found that in 2019 Flagstar made 60,982 mortgage loans to whites, with 13,963 denial to whites - while making only 3799 loans to African Americans with fully 1777 denials to African American. This was significantly worse than other lenders.
New York Community Bank's record as an enabler of and profiteer off slumlords led Inner City Press file a Community Reinvestment Act challenge to its then-proposed merger with Astoria Bank, which fell apart.
A year a half later, the proposed merger was still not done and the extended deadline was approaching, amid talk of, as we predicted, fair lending action.
Then at 8 am on November 7, the banks bragged they had Fed approval. But a visit to the Fed's website at 8:40 am did not find any press release of approval. The Fed is getting more and more lax. We'll have more on this.
Inner City Press has gone back to find Flagstar's comments on the proposed and still pending Community Reinvestment Act regulations - tellingly, full of resistance: "Because Flagstar supports the goals of the CRA, the Bank submits this comment letter to highlight concerns about the Agencies' proposed reforms to the CRA framework. This Proposal would undermine the objectives of the CRA and run contrary to the Agencies' stated effmts to ensure that the law continues to be an effective force for strengthening banks and the communities they serve, which j: intludes (i) low- and moderate-income ("LMI") individuals, families, and neighborhoods; (ii) small businesses and farms; and (iii) communities in need of financial services and economic development. Flagstar is particularly concerned about the proposed retail lending assessment area requirements, which would impose significant regulatory, operational, and staffing burdens on banks (especially when coupled with the proposed data collection requirements); force banks to spread limited CRA resources thin and undermine the effectiveness of their CRA programs; and place banks at a competitive disadvantage to nonbanks and other lenders not subject to the CRA. In our view, these challenges will discourage banks from engaging in retail lending and other CRA activities that could otherwise benefit local communities, contrary to the spirit of the law. Moreover, as applied to Flagstar, the proposed retail lending assessment requirements would be so overly burdensome and unworkable that they would likely cause us to question and rethink our business model. 1. There is insufficient data to justify abandoning longstanding interpretations of the CRA to require the delineation of lending-based assessment areas; Requiring the delineation of a lending-based assessment area would go beyond the text and purpose of the CRA." Yeah.
In late January 2025, Flagstar CFO Lee Smith said Flagstar is closing about 60 retail branches, most of which it leases; about 20 private-client retail locations; and a couple of operating centers that are owned by the bank.
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