Steven Mnuchin, President-elect Donald Trump’s pick for Treasury secretary, has deep roots in Los Angeles — from a mansion in Bel Air to a career as a film financier in Hollywood to an employment history that includes founding a Pasadena bank that has been accused, among other things, of predatory lending practices in California.
Mnuchin, who formed OneWest bank in 2009, will attempt to defend his record against Senate Democrats during his confirmation hearing Thursday.
During the years that Mnuchin led OneWest as its CEO — from 2009 to 2015 — the bank foreclosed on more than 36,000 California homeowners, according to the research of the California Reinvestment Coalition (CRC), a housing advocacy group. During that same period, the bank was sued in more than 800 lawsuits, an analysis by the Atlantic found. At least six federal and state agencies have conducted reviews, audits, or investigations into OneWest’s practices.
But Mnuchin, vilified by critics as the “foreclosure king,” will address the Senate Thursday morning unscathed by any formal charges, Kevin Stein, the deputy director of the CRC, which has tracked OneWest’s practices since 2011, told The Real Deal.
Mnuchin — also a former Goldman Sachs partner and hedge fund owner — will take the lectern alone. Senate Democrats invited homeowners who dealt with OneWest to share their stories, but the Senate Committee on Finance rejected the request to hear them out during the confirmation.
Still, Mnuchin’s Democrat foes in the chamber will have an arsenal of controversies to address. Read on for the items most likely to be at the top of the agenda.
Attorneys General investigations
Mnuchin became the chairman and CEO of OneWest in 2009, when he and a band of fellow Goldman alums bought out the remnants of shuttered bank IndyMac from the federal government. Within five years, he was able to court more than $6 billion of business, commercial real estate and multifamily loans for the bank — while also offering more than 100,000 loan modifications to homeowners, according to his spokesperson’s comments in the Washington Post.
But OneWest has been subject to multiple investigations and audits that concern that time period, the most recent of which came out of the New York Attorney General’s office regarding reverse mortgages. The investigation will look into whether OneWest, under its vertical Financial Freedom, employed predatory tactics to push elderly homeowners into foreclosure, the Wall Street Journal reported Wednesday.
Reverse mortgages are a way for aging homeowners to borrow money against the equity on their homes. Borrowers, their lawyers and consumer advocates alleged in interviews with the Journal that OneWest hastened the foreclosure process on reverse-mortgage holders behind on property taxes and cut the time allowed for deceased borrower’s’ heirs to pay loans to avoid foreclosure.
In a Wednesday forum organized by Sen. Elizabeth Warren, people who lost their homes to OneWest testified. Colleen Ison-Hodroff of Minneapolis said she received notice from the bank just days after her husband’s death, threatening foreclosure if she did not repay the reverse mortgage in full.
The New York Attorney General’s office isn’t the first to poke into OneWest’s reverse mortgages. The issue also came up in a public Federal Reserve hearing for the review of OneWest’s $3.4 billion sale to CIT Group last year, when other former borrowers recounted reverse mortgage nightmare stories.
“Foreclosing on reverse mortgages is the opposite of the intentions of the program,” which was created under the Department of Housing and Urban Development, Stein said. “These loans are supposed to help people from these exact situations.”
Mnuchin, however, claims that OneWest was forced to pursue foreclosures on reverse mortgages because it was simply HUD policy, according to his prepared remarks for the hearing Thursday, which were obtained by Bloomberg.
“Not complying with these HUD policies would have subjected the bank to penalties and losses from HUD,” he said in the statement.
The California Attorney General’s office, too, investigated OneWest. The preliminary investigation by its consumer law division was revealed in a 2013 memo sent to the Intercept.
In the memo, four deputy attorneys in the office recommended that Attorney General Kamala Harris file a civil enforcement action against OneWest after they discovered the bank had violated foreclosure proceedings in over a thousand instances.
The deputy attorneys went as far as writing up a draft of the legal complaint that Harris could use.
The violations, which the authors identified from a small sample of OneWest loans, include backdating documents related to notices of default, unlawfully bidding on properties at foreclosure sales, and refusing to comply with state subpoenas.
The Federal Deposit Insurance Corporation audited OneWest several times — though mostly to follow-up with its loss-sharing agreement with the bank, which many criticized as being too generous. In 2011, the FDIC received a letter from former employees that the bank had ordered them to reject as many loan modifications as possible. The inspector general, however, later found the claim to be unsubstantiated.
OneWest has had its share of lawsuits, and it’s unclear how many settlements the bank has made. Many lawsuits come from whistleblowers who formerly worked for the company, who say they were ignored by supervisors after telling them that the bank was not complying with federal regulations. One lawsuit estimates that the bank could owe the government more than $100 million due to its violations of federal regulations.
Then there are the claims of housing discrimination. The CRC, alongside Fair Housing Advocates of Northern California, made a formal complaint about OneWest to HUD last year, claiming that the bank discriminated against black and hispanic borrowers in California.
OneWest has 52 branches in Los Angeles alone, but lent to only two black borrowers across six Southern California counties throughout the years of 2014 and 2015, according to the groups’ analysis.
Mnuchin, in the prepared remarks for his hearing that Bloomberg obtained, claims OneWest gave out more than 100,000 loan modifications to borrowers “to try and help them out of a bad situation.”
“Since I was first nominated to serve as Treasury secretary, I have been maligned as taking advantage of others’ hardships in order to earn a buck,” he said in the statement. “Nothing could be further from the truth.”
Mnuchin’s Senate confirmation hearing will begin at 10 a.m. Eastern Time.