President-elect Donald Trump’s pick for Secretary of the U.S. Treasury, Steve Mnuchin, testified before a United States Senate committee this past week, where he answered for the reverse mortgage business practices of a now-defunct originator that was formerly owned by a company under his control.
Since his nomination to serve as the Treasury Secretary under the Trump Administration, Mnuchin has been the subject of high-profile press coverage due to the foreclosure activity of his former firm, OneWest Bank, and the company’s Financial Freedom reverse mortgage division. OneWest was later acquired in August 2015 by CIT Group Inc. (NYSE: CIT).
During the hearing to consider Mnuchin’s confirmation as Secretary for the U.S. Treasury, several Democratic members of the Senate Committee on Finance focused on the widely reported tactics of OneWest between 2009 and 2014, a period during which the bank foreclosed on more than 35,000 homes, including those belonging to reverse mortgage borrowers.
“OneWest churned out foreclosures like Chinese factories churned out Trump suits and ties,” said Committee Ranking Member Sen. Ron Wyden (D-OR) during the hearing. “‘Widow foreclosures’ on reverse mortgages—OneWest did more of those than anybody else.”
In 2009, Mnuchin and a group of investors purchased the failed IndyMac Bank from the Federal Deposit Insurance Corporation. As part of the transaction, OneWest also acquired Financial Freedom, which at the time was one of the largest reverse mortgage lenders in the nation.
“My group had nothing to do with the creation of risky loans in the IndyMac loan portfolios,” Mnuchin said during Thursday’s hearing. “When we bought the bank we assumed these loans, which had been originated by the previous management. Some of those individuals had to answer to federal authorities for their bad lending decisions.”
Like many banks at the time during the financial crisis, Mnuchin said IndyMac and Financial Freedom had a large amount of distressed mortgages in their portfolios.
“These legacy loans were included in the IndyMac purchase,” he said. “The responsibility landed on me to clean up the mess others made, but that we inherited.”
A Freedom of Information Act (FOIA) request filed by the California Reinvestment Coalition, a staunch opponent to OneWest’s foreclosure activities against reverse mortgage borrowers, revealed that Financial Freedom’s share of reverse mortgage foreclosures since April 2009 was more than twice as much as the company’s market share.
While Financial Freedom serviced an estimated 17% of the reverse mortgage market, HUD data indicated that the company was responsible for 39% of the more than 41,000 Home Equity Conversion Mortgage foreclosures that occurred between April 2009 and March 2015, according to the FOIA request.
In some cases, homeowners faced foreclosures for being short on their property taxes or homeowner’s insurance payments by less than $1, according to remarks from committee members such as Sen. Bill Nelson (D-FL), who recounted an instance where a Lakeland, Florida, woman was foreclosed on for owing only $0.87.
Despite the small balance, Mnuchin credited the rigidity of HUD regulations for forcing Financial Freedom’s and OneWest’s hand to proceed with foreclosure.
“In 2015, when HUD issued Mortgagee Letter 2015-11, I wrote HUD and asked them to change their policy so we wouldn’t have to foreclose on senior citizens who were behind by a small amount on their taxes and insurance,” Mnuchin said.
“Unfortunately, HUD did not agree and we were forced to foreclose on senior citizens, even if they only owed $1,” he added. “Not complying with these policies would have subjected the bank to penalties and losses from HUD.”
Ultimately, OneWest extended over 100,000 loan modifications to delinquent borrowers in efforts to help homeowners remain in their homes, according to the testimony of Mnuchin, who also stressed that in some cases, the FDIC loan modification program did not work for everyone.
“When the FDIC took over IndyMac, they estimated that more than half of the foreclosures would not meet their test for a loan modification,” he said.
Furthermore, the FDIC demanded numerous policy conditions, according to Mnuchin, which included extending assistance to borrowers by establishing affordable and sustainable payments by boomers, increasing net present value of cash flows to the owner of the loan, and stabilizing housing markets.
“My group had to adhere to servicing agreements which limited our ability to modify loans that could have helped borrowers,” he said.
Opponents, such as the California Reinvestment Coalition, argue that Mnuchin wasn’t telling the whole story during his testimony before the Senate Committee on Finance.
Citing federal data, the non-profit CRC notes that since the start of the Home Affordable Modification Program (HAMP) introduced by the Obama Administration in 2009, OneWest Bank actually denied two-thirds of the homeowners who applied for a loan modification from the bank through HAMP.
Of the one-third of homeowners who managed to get a loan modification offer, more than 70% of those offers extended did not convert into a permanent loan modification, according to a Reuters analysis of HAMP data for the period of 2009-2013.
“Steve Mnuchin’s written testimony and claims he made during the hearing today are riddled with half-truths about what his bank did and didn’t do, and so it’s important to set the record straight,” said CRC Executive Director Paulina Gonzalez, who testified during a separate forum hosted by Senate Democrats last week, which featured testimony from several homeowners foreclosed upon by OneWest and Financial Freedom.
Despite the grilling received at the hands of Senate Democrats during Thursday’s nomination hearing, there is little to suggest that Mnuchin’s nomination to serve as Secretary for the U.S. Department of the Treasury is in any danger.
“Put simply, if the confirmation process focused mainly on the question of a nominee’s qualifications, there would be little, if any, opposition to Mr. Mnuchin’s nomination,” said Senate Finance Committee Chairman Sen. Orrin Hatch (R-Utah) during the Mnuchin nomination hearing.
Written by Jason Oliva