He’ll probably get confirmed. But first, Steve Mnuchin, Donald Trump’s nominee for Treasury Secretary, will have some explaining to do.
Mnuchin is a Goldman Sachs alumnus and lifelong financier who mostly has a strong track record of earning millions of dollars for clients and himself. But he became a lightning rod after assembling a group of investors to buy the insolvent bank IndyMac in 2009. Mnuchin et al. renamed the bank OneWest and successfully turned it around, but in the process foreclosed on thousands of irate homeowners while also drawing criticism for exploiting corporate welfare. Those foreclosures represent ready ammunition for Trump critics eager to paint his Cabinet choices as heartless Wall Streeters.
IndyMac flew high during the housing boom, specializing in “Alt-A” loans issued to borrowers with decent credit but income that was hard to document. The loans were considered safe as long as housing values kept rising, since in a default, IndyMac would inherit real estate worth more than when it had issued the loan. But when housing values started to crater, IndyMac endured a spectacular crash, including an old-fashioned run on deposits. When it filed for bankruptcy on August 1, 2008, IndyMac was one of the biggest bank failures of all time.
With the whole financial system teetering on the edge of collapse, the FDIC, which took over IndyMac, struggled to find a buyer. Mnuchin, who was operating a hedge fund at the time, thought he saw an opportunity. He assembled a group of investors who bought IndyMac for $1.55 billion in early 2009. To facilitate the deal, the FDIC agreed to a “shared loss agreement” under which the agency’s deposit-insurance fund would bear the cost of bad IndyMac loans above a certain threshold, to assure the new buyers they weren’t investing in a bottomless sinkhole.
Like most banks during the housing bust, the newly named lender, OneWest, began to foreclose on borrowers who couldn’t make their mortgage payments as the housing crisis intensified and a brutal recession left millions unemployed. Protesters began to target OneWest in particular for what they said were callous decisions regarding homeowners in distress. On one day in 2011, protestors briefly overwhelmed security guards at OneWest’s Pasadena headquarters and occupied the lobby. On another occasion they showed up outside Mnuchin’s Bel Air mansion, demanding help for one woman who lost her home after her brother’s death left her struggling to pay her mortgage.
By 2015, OneWest had foreclosed on 36,000 homes, according to a nonprofit called the California Reinvestment Coalition (CRC), which tracked the bank’s activities. The CRC also said the FDIC had committed to absorbing $2.5 billion of current or future OneWest losses on loans issued by IndyMac—considerably more than Mnuchin’s group paid for the bank in the first place. As part of that deal, OneWest was supposed to be lenient with distressed borrowers and help them avoid foreclosure if possible. Housing advocacy groups accused OneWest of violating its pledge to help troubled borrowers and excessively targeting minority neighborhoods for foreclosures.
Neither OneWest nor Mnuchin was ever officially charged with any kind of wrong-doing, and the bank defended itself at the time by saying its agreement with federal housing underwriters gave it little choice but to liquidate bad loans. In 2015, New York lender CIT bought OneWest for $3.4 billion—a 219% return for Mnuchin and his fellow investors. Government regulators cleared the deal, despite opposition from fair-housing groups claiming OneWest hadn’t upheld the terms of the 2009 IndyMac purchase. Mnuchin is now a CIT board member, seemingly beyond any type of legal reproach.
But that won’t stop bank critics such as Democratic Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont from highlighting OneWest’s foreclosure practices and drumming up some hardship tales involving people who lost their homes to Mnuchin’s bank. Trump seems to be suffering no blowback, so far, for policies and Cabinet picks that seem to endorse the privileged class Trump ran against during the campaign. So Mnuchin may slide in under the radar. But if Trump’s policies fail to lift up the “forgotten men and women” he promised to help during the campaign, the former activities of his banker aides may start to matter more.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.