President-elect Donald Trump officially picked his man to be the next Treasury Secretary on Wednesday: Steve Mnuchin.
Mnuchin’s most recent background is in Hollywood, and he’s also an alumni of Goldman Sachs — making him an interesting pick for a man whose closing campaign ad railed against the “global establishment” and featured images of Goldman Sachs CEO Lloyd Blankfein and Manhattan’s Wall Street.
But Mnuchin’s heaviest baggage may be from his tenure as owner and chairman of the bank OneWest.
A “foreclosure machine”
Along with other Goldman Sachs bankers, Mnuchin helped to buy what was left of mortgage lender IndyMac in 2009 after it had collapsed amid the mortgage meltdown. The bank had been taken over by the FDIC after its binge on subprime mortgages went toxic.
Mnuchin and his colleagues subsequently named the bank OneWest. And under their supervision, the bank foreclosed on 36,000 home loans, according to the California Reinvestment Coalition, which has called the bank a “foreclosure machine.” Meanwhile, the bank was getting payments from the FDIC to cover a portion of the bank’s business losses that came to $1 billion.
In particular, the bank’s Financial Freedom unit, which issued reverse mortgages mostly to elderly homeowners borrowing against their home’s equity, has foreclosed on at least 16,200 of these loans since 2009, according to other data obtained by the California Reinvestment Coalition. That makes up nearly 40 percent of all foreclosures on reverse mortgages in that time period even though it served just 17 percent of the market. The unit has caught the eye of the Department of Housing and Urban Development’s Office of Inspector General, which has launched an investigation into it.
One such homeowner is Rex Schaffer, an 86-year-old resident of California. As he told NPR, he and his wife took out a home equity loan on their home of nearly 50 years but had a hard time affording the payments. They qualified for three different government-assisted modifications to make it easier to afford, they say, but OneWest never changed the terms of their loan, even though Rex says he contacted 33 different employees.
As their house was about to be sold in an auction, Rex says he finally got through to a bank vice president who offered a 60-day extension on the sale — only to have the house sold the next day, unbeknownst to them. “We didn’t even know it — didn’t have the faintest idea,” Rex told NPR.
Another is Leslie Parks, who came back to her home in Minnesota from work one day in 2009 to find her locks changed. Her mother had years earlier refinanced a fixed-rate mortgage to an adjustable-rate one that could go up at any time with OneWest. When Parks was locked out of her house, she was in the middle of trying to get a loan modification from the bank.
Yet another is Rose Gudiel, who tried for two years to get OneWest to modify her loan after she was furloughed at work a number of times and her brother was killed. She says the bank refused and instead put her house into foreclosure. “I have the money to pay for my home,” she told the Pasadena Star-News. “All I want is for the bank to let us keep our home.” Her story inspired a march of about 100 people to protest in front of Mnuchin’s home in 2011.
The bank was also accused by employees of encouraging fraudulent behavior. A Texas employee said in a 2009 deposition that she was forced to partake in what became dubbed “robo-signing,” or mortgage officials signing off on foreclosures without verifying information or giving the documents an in-depth look. She said she signed 750 such affidavits and documents a week, spending just 30 seconds on each. A later review found that nearly 11,000 borrowers, or 5.6 percent of all its borrowers, were due remediation for such practices.
Modern-day redlining
The bank didn’t perform much better in the aftermath of the foreclosure crisis. According to a recent complaint filed with the Department of Housing and Urban Development by the California Reinvestment Coalition, the bank engaged in redlining by giving few mortgage loans to people of color, failing to locate branches in communities of color, and doing less maintenance on foreclosed homes in neighborhoods of color than white ones.
Specifically, the lawsuit contends that none of the home loans it made in Los Angeles in 2012 and 2013 went to black borrowers, while just 0.1 percent went to Latino ones. It says there were zero branches in black neighborhoods, one in an Asian neighborhood, and 11 in Hispanic areas.
The lawsuit also includes data showing that all foreclosed homes in communities of color had at least five deficiencies — like a build up of trash, physical damage like broken doors or fences, or a lack of a “for sale” sign — compared to a third of those in white areas. Such conditions can lower the value of neighboring houses and even attract crime.
While Mnuchin no longer owns OneWest, he still sits on CIT’s board, the firm that bought his bank. And he did quite well from his investment. After OneWest was sold last year for $3.4 billion, Bloomberg calculated that he may have made more than $200 million. That doesn’t include any compensation he may have gotten for his leadership role at OneWest.