The most endangered Cabinet pick on Trump’s economic team – Yahoo Finance
If you’re seeking a guide to confirmation fireworks for Donald Trump’s economic team, you can probably skip the upcoming Senate hearing for Wilbur Ross, Trump’s pick for Commerce Secretary. But tune in to the hearings for Trump’s Treasury nominee, Steve Mnuchin, set to begin this Thursday at 10 a.m.
Mnuchin is a Wall Street power broker who spent years at investment bank Goldman Sachs, before starting a hedge fund that invested in Hollywood film production, among other things. But that’s not what his critics will focus on. Instead, they’ll highlight Mnuchin’s role as the owner of a controversial California bank that foreclosed on thousands of customers’ homes after the federal government helped the bank survive.
Mnuchin led a group of wealthy investors who bought the bank IndyMac after it declared bankruptcy in the summer of 2008. During the housing boom, IndyMac specialized in so-called Alt-A loans issued to borrowers who may have had decent credit but couldn’t document their income in conventional ways. As the housing bust intensified and bad loans piled up, IndyMac suffered a full-blown bank run and was taken over by the FDIC. By then, several other sizable lenders had failed and been taken over by giant banks such as J.P. Morgan Chase and Bank of America. With the financial crisis worsening, none of the industry titans wanted to gamble on IndyMac.
Mnuchin’s group bought IndyMac in early 2009, for $1.55 billion, with some help from the FDIC, which agreed to bear the cost of some of the bad loans on the bank’s books. Since IndyMac had become notorious by then, Mnuchin changed the name to OneWest, in attempt to start over with consumers. But it couldn’t completely start over because OneWest still held thousands of troubled loans it had to deal with.
Questionable practices at OneWest
During the next six years, OneWest foreclosed on 36,000 homes, according to a nonprofit called the California Reinvestment Coalition (CRC), which tracked the bank’s activities. Foreclosures spiked just about everywhere during the years following the financial crisis, and banks are usually within their rights to claim collateral on mortgages borrowers can’t pay. OneWest was somewhat different, because it got favorable terms the FDIC in exchange for pledging to be lenient with distressed borrowers. Fair-housing advocates claim OneWest didn’t live up to its end of the bargain, and targeted minority neighborhoods.
It gets murkier. The California attorney general investigated OneWest and found evidence of “widespread misconduct” in its foreclosure practices, according to a memo written in 2013 and obtained recently by The Intercept. But the California AG, Democrat Kamala Harris, never pressed charges, for reasons that are unclear. Harris won election to the US Senate in November and will vote on Mnuchin’s nomination as Treasury Secretary.
Mnuchin’s group sold OneWest to CIT in 2015, for $3.4 billion — an enviable 219% markup on what they paid. That didn’t make Mnuchin a billionaire, like Trump and Ross, but his net worth is probably in the mid-nine digits — still far richer than most Cabinet secretaries, ever.
There have been no formal charges of wrongdoing against Mnuchin. But OneWest’s foreclosures were intensely controversial in California while Mnuchin ran the bank. Protesters briefly seized the lobby of the bank’s headquarters in Pasadena one day in 2011, and shortly after that about 100 OneWest critics showed up at Mnuchin’s $26 million Bel Air mansion to air their grievances. Mnuchin later told Bloomberg, “It was terrible. Something I never want to experience again.”
Mnuchin’s Senate critics will no doubt remind him of the California foreclosures. The most strident Trump critic in the Senate, Elizabeth Warren, doesn’t sit on the Finance Committee that will hold the Mnuchin hearing. But ranking Democrat Ron Wyden of Oregon has promised a tough interrogation, and Democrats are sure to hit Mnuchin with as much dirt as they’re able to dig up, even if none of it suggests criminal activity.
Ross will probably have a much easier time. He’s been characterized as a “vulture investor” who found ways to profit by buying the remnants of downtrodden industrial companies and packing them in a way that added value, which sounds inflammatory. But labor unions also credit Ross with saving jobs and companies that would have disappeared without his involvement. Call it a draw, and not enough of a target to attract heavy Democratic fire.
Other Trump economic nominees have sharp and sometimes controversial views on important issues — but without the kind of real-world baggage Mnuchin’s foreclosures represent. Those nominees include restaurant CEO Andy Puzder, Trump’s nominee for Labor Secretary, and Republican Congressman Mick Mulvaney, Trump’s pick to head the Office of Management Budget. If Mnuchin survives, they should be shoo-ins.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.