Steven Mnuchin's OneWest filed to take a 90-year-old woman's house after a 27-cent payment error.
Donald Trump wasn’t the only person to see opportunity in the 2008 housing collapse. As the economy recovered from the rubble of failed banks, foreclosed homes and government bailouts, Steven Mnuchin emerged a winner.
That success is coming back to haunt the hedge fund manager and Hollywood producer who is Trump’s choice for Treasury secretary. OneWest, a bank Mnuchin and his partners established during the collapse, has taken steady fire from regulators and consumer advocates for myriad failures ever since.
In Florida, the company foreclosed on a 90-year-old woman after a 27-cent payment error. New York Gov. Andrew Cuomo singled out the lender for squeezing Superstorm Sandy victims. Last month, the company’s successor, CIT Bank, was accused of discriminating against minority borrowers.
“We’re just coming out of a foreclosure crisis and a serious economic downturn. It’s not the time to appoint someone who sided with corporate America over real people,” said Alys Cohen, an attorney with the National Consumer Law Center. “Mr. Mnuchin comes from Wall Street and has served monied interests over homeowners.”
Ultimately, Mnuchin’s story, like the housing collapse, doesn’t fit into a simple narrative. While earning the ire of consumer advocates, Mnuchin also brings an understanding of the global mortgage market that Trump will need to complete the unfinished business of the housing recovery. Inside the Beltway, some are cheering his appointment.
Mnuchin, OneWest and the Trump transition team did not return calls for comment.
Mnuchin became a target of consumer activists in 2009, after he and his partners bought the remains of failed mortgage lender IndyMac. The company had specialized in high-risk loans, including so-called liar loans to borrowers with no money or income, and had become a symbol of the Wall Street recklessness that had sent the country into recession and millions of homeowners into default.
When the FDIC shut IndyMac down, Mnuchin and his partners swept in to buy what was left, bad loans and all. As was typical at the time, the FDIC agreed to help OneWest cover the cost of the bad assets it inherited, including losses on foreclosed single-family loans.
And the foreclosures came, 36,000 of them by one estimate. So far, losses under the deal have mounted to $4.6 billion. The FDIC has paid the bank $1.2 billion, according to agency data.
That payout has been a lightning rod for OneWest critics, even though the bank and its successors absorbed $3.4 billion in losses that the FDIC didn’t cover.
Despite those losses, Mnuchin came out ahead. Last year, OneWest closed on a $3.4 billion, hard-won deal to merge with CIT Bank, overcoming challenges from fair-housing advocates, civil rights groups and homeowners. Mnuchin took a reported $10.9 million payout and remains on CIT’s board.
“Investors in the bank, including Mr. Mnuchin, profited handsomely at the expense of thousands of working people across our state,” said Kevin Stein, deputy director of the California Reinvestment Coalition.
Problems at OneWest persist, Stein said. Last month, the coalition complained to the Department of Housing and Urban Development that the lender was failing to serve African-American and Latino communities in its market. He and other advocates call the bank’s foreclosure practices aggressive.
“The merger was supposed to have established that there would be a public benefit,” Stein said. “Instead we saw a lot of public harm.”
Two years ago, OneWest filed foreclosure papers on the Lakeland, Florida, home of Ossie Lofton, who had taken a reverse mortgage, a loan that supplies cash to elderly homeowners and doesn’t require monthly payments.
After confusion over insurance coverage, a OneWest subsidiary sent Lofton a bill for $423.30. She sent a check for $423. The bank sent another bill, for 30 cents. Lofton, 90, sent a check for 3 cents. In November 2014, the bank foreclosed.
In October, lawyers at the nonprofit Florida Rural Legal Services contested OneWest’s foreclosure and asked the Polk County Circuit Court for a jury trial.
“I don’t know that they’re the worst, but I certainly think it’s criminal the way these servicers are treating elderly homeowners,” said Lynn Drysdale, an attorney representing Lofton.
While consumer advocates fight OneWest in the trenches, some inside the Beltway see a glimmer of hope in Mnuchin, an expert in mortgage bonds and structured finance. They say he has the technical know-how to fix mortgage giants Fannie Mae and Freddie Mac, a job Congress and the Obama administration have avoided. Wednesday, he vowed to move quickly on that unfinished business.
“It makes no sense that these are owned by the government and have been controlled by the government for as long as they have,” Mnuchin told Fox Business. “We’ll make sure that when they’re restructured they’re absolutely safe and they don’t get taken over again, but we gotta get them out of government control.”
The comment cheered financial lobbyists and sent the companies’ stock soaring.
“He knows how everything works,” said John Taylor, president and chief executive officer of the nonprofit National Community Reinvestment Coalition. “Given his background, I’d like to be optimistic. The guy’s already made a lot of money. Now it’s time to make sure others share in that prosperity.”