In February, two months after the Trump administration pulled off one of the biggest wealth transfers in U.S. history, Treasury Secretary Steve Mnuchin gave a public lecture on economic policy at UCLA. To his apparent surprise, it did not go well.
Mnuchin was a key architect of the GOP’s $1.5 trillion tax cuts, passed last December, which over the next decade will funnel 83 percent of its benefits to the top 1 percent of U.S. earners — including to himself. With a net worth of half a billion dollars, Mnuchin and his wife are in the top one-one hundredth of one percent.
Arriving on UCLA’s leafy campus, he was greeted by student protesters who had dressed as Marie Antoinette and were serving cake to passersby. It was a nice touch, but the dramatization was hardly necessary: Mnuchin’s own performance quickly betrayed him as a man as aggressively out of touch with his audience as an 18th-century monarch staring down starving peasants.
Introduced as a man who is “a financier in his DNA” — a reference to his Goldman Sachs pedigree — Mnuchin looked taken aback when his arrival on stage drew hisses from the audience. “This is a new experience for me,” he said petulantly. “I usually go speak to people who want to listen to me speak.”
Nonetheless, Mnuchin pressed on with his standard talking points about tax reform. After years of stagnant wages, he proclaimed, more than 4.5 million workers were finally getting a boost this year thanks to the Tax Cuts and Jobs Act. Not an actual raise, mind you, but the one-time bonuses that Republicans have been touting relentlessly since the bill’s passage. Never mind that the handful of $1,000 checks given out by large companies amount to a fraction of their tax cuts savings, or that most workers at the bottom of the bracket will pay more in taxes by 2027, regardless of whether they ever get a raise. Let them eat one-time bonuses.
The audience continued their subdued heckling and, after about five minutes, Mnuchin began to unravel. “Who hissed?” he snapped awkwardly.
“Can I at least get a hand on who hissed on that one?”
“If you were getting paychecks in February, when your withholdings went down, you wouldn’t be hissing.”
About seven minutes in, the peasants began revolting. One person screamed that the tax bill was “the politics of cruelty” and was carried out by security. Matters grew even worse when Mnuchin’s interlocutor for the conversation, "Marketplace"’s Kai Ryssdal, took a shot at the aforementioned bonuses, asking, “What would you rather have? Would you rather have a one-time bonus or a consistent wage increase over the next couple of years?” Mnuchin accused the public radio host of bias. “For people who are getting these thousand-dollar bonuses, these are not crumbs,” the multi-millionaire protested.
All of this culminated in a comically preventable PR disaster for Mnuchin: He tried to block UCLA from releasing video of the event. Of course, this had the opposite effect of ensuring that the otherwise low-profile incident remained in the news cycle for weeks. After several news organizations filed public-records requests, the university posted the video nearly three weeks later, saying that it had received Mnuchin’s consent. The massive, unforced error seems to have been caused only by the Treasury secretary’s vanity.
One might expect that a man who posed, smirking, with a sheet of newly minted $1 bills — and delighted at the inevitable comparison to a James Bond villain — might be more prepared to own his overwhelming unpopularity. But this isn’t the first time that Mnuchin has shrunk from the spotlight turned on him through his own immiserating policies.
As chairman of OneWest Bank, Mnuchin began having his address scrubbed from the internet after anti-foreclosure protesters marched on his nine-bedroom, 10-bathroom Bel-Air mansion in 2011.
“Without the . . . large LAPD presence on scene, I do not think the protest would have been as placid as it was,” Mnuchin pled in a 2014 divorce filing in which he asked the judge to keep his address private. “I can only imagine the psychological harm that would have come to our minor children if they were at the house to see over 100 people protesting at their home.”
Never mind that the victims of OneWest’s operation included seniors reportedly foreclosed on over $0.27, and a family with young twin sons evicted abruptly while still in the process of applying for a loan modification. Won’t someone please think of the children?
Stories like these earned Mnuchin, who ran OneWest from 2009 to 2015, the nickname “Foreclosure King.” This apparently wounded him: During his confirmation hearings, he complained to senators that he has “been maligned as taking advantage of others’ hardships in order to earn a buck. Nothing could be further from the truth.”
This kind of self-righteous indignation might be no more than a bit of political theater on the part of someone used to getting his hands dirty. But it’s equally possible that over the course of a preternaturally fortunate career, built through no discernible virtue of his own, Steven Terner Mnuchin has grown an extraordinarily thin skin.
Born into Wall Street royalty, Mnuchin ascended easily from a job in the mortgage department of Goldman Sachs into the brave new early-aughts world of hedge funds. There, he assembled a consortium of investors to buy a bank that was imploding (thanks to the type of financial products he peddled for years at Goldman) and proceeded to run that bank abominably for a few years before selling it to a bigger bank at enormous profit. A series of train wrecks, in other words, from which he has always managed to jump clear.
That trajectory inspired one of Sen. Elizabeth Warren’s better quips. “Steve Mnuchin is the Forrest Gump of the financial crisis,” she said in a statement after his appointment was announced in November 2016.
Indeed, like the Oscar-winning tale of Tom Hanks’ humble everyman, Mnuchin’s story has a compelling sense of continuity to it. The 1994 film starts and ends with the image of a white feather floating through the air; Mnuchin got his own, slightly less whimsical, recurrence when the same protesters who marched on his Bel-Air mansion in 2011 returned on a bleak January day in 2017, the day before his confirmation hearings, carrying signs that read “Stop Trump’s Foreclosure King.”
They were led by Rose Gudiel, a home-care worker who fought a years-long battle with OneWest to save the Los Angeles home where she lives with her parents, husband and young daughter. The trouble began in 2009, when the family missed a mortgage payment following the devastating murder of Gudiel’s brother. Two weeks later, the family got the money together and attempted to send in the payment, but OneWest refused to accept it and started the foreclosure process. The bank relented only after the 2011 protest at Mnuchin’s house.
“Mnuchin doesn’t care about ordinary people,” Gudiel told the rain-soaked crowd six years later.
What’s more, Mnuchin doesn’t appear to understand just how many ordinary people revile him and the ongoing economic ruin he represents in their lives. In comparison to some of the career white supremacists on the Trump team, the confirmation of “hedge fund guys” like Mnuchin was welcomed in some quarters as a moderating force: He’s been described in our papers of record as “pragmatic” and “non-ideological.” It’s possible, given the treasury secretary’s shock at his cold reception at UCLA, that even he believes himself to be a clear-eyed technocrat rather than a Wall Street ideologue.
But the intense condemnation from people like Gudiel, or Los Angeles county health worker Robert Strong, who left a bag of horse manure on the secretary’s doorstep on Christmas Eve with the note “We’re returning the ‘gift’ of the Christmas tax bill . . . Warmest wishes, The American people,” suggests that most of us understand exactly which side Mnuchin is on — even if he himself does not.
The king of foreclosures
Mnuchin’s biggest coup, and the start of his reign as foreclosure king, came in 2009. In a generous deal with the FDIC, Mnuchin led an investment team that bought the predatory lender IndyMac, saddled with tens of thousands of failing mortgages, for $1.65 billion. The FDIC had a standard deal for buyers of crisis-era banks; they would cover all losses above the first 20 percent on loan defaults.
Mnuchin, who became CEO and later chairman, treated this as a money-printing machine: his bank, renamed OneWest, could foreclose on homeowners, harvest fees for appraisals and inspections and late payments, and get protected by a federal backstop.
The FDIC lost at least $13 billion on IndyMac; the bank made $3 billion in profits in the five years after it was purchased by Mnuchin and company, much of that coming directly from the FDIC in loss-sharing costs.
Some of the worst foreclosure horror stories involve OneWest’s involvement with reverse mortgages, a product marketed to an especially vulnerable group — elderly individuals and couples on fixed incomes.
A 103-year-old, Myrtle Lewis, slipped into foreclosure after a one-month lapse in her homeowner’s insurance coverage. A 92-year-old widow from Florida was evicted by Financial Freedom, OneWest’s reverse mortgage arm, over a 27-cent underpayment.
Sandra Jolley, a whistleblower who eventually filed a complaint against Financial Freedom, first fought the company over a reverse mortgage sold to her parents in 2005.
At the time, Jolley’s father was dying from terminal cancer and heavily medicated for pain; her mother was in the throes of Alzheimer’s disease. A long-term care salesman “knew exactly what he was looking at,” according to Jolley, and pushed the couple into a reverse mortgage. She says it was “the last thing they needed.” Interest from an investment portfolio covered their bills, and their mortgage was almost paid off. In the meantime, the couple had built up more than $400,000 of equity in the house in Thousand Oaks, California, where they had lived for 35 years.
Through the 2005 reverse mortgage, Financial Freedom paid Jolley’s parents a lump sum of $80,000 — a loan that came due, with fees and interest, when her father died later the same year. Jolley had moved back in with her parents as a caregiver, but did not learn of the loan until after her father’s death. That started a protracted legal battle to hang on to the house.
After connecting with other consumers, Jolley went on to document more than a dozen ways that Financial Freedom had allegedly violated federal and state regulations, including refusing to allow heirs to repay the loan balance, backdating documents, force placing insurance, and illegally accelerating foreclosure and auction following the death of a borrower.
Jolley says that Financial Freedom repeatedly dodged her attempts to communicate with them and repay the loan. Finally, she says the company sold the house at auction, giving her just two days’ notice. The buyer was Colony America — a single-family rental company owned by another member of Trump’s inner circle, Tom Barrack. After a year of paying rent on the house her parents used to own, Jolley decided to cut her losses and move away. Her mother died in 2011.
The reverse mortgage “completely destroyed our family,” says Jolley. “I didn’t have time to grieve my father for six years.” A years-long legal battle against Financial Freedom cost nearly $100,000, and “trapped my mother in a two-story house that was unsafe for her, with me as her full-time caregiver, because we couldn’t access the equity in our home.”
But through her ordeal, Jolley began documenting the depths of abuses in the reverse mortgage industry. She set up a website where reverse mortgage borrowers and their families could contact her and offered them free consultation, often helping others succeed where she had failed. Last year, Jolley launched her own organization, Consumer Advocates Against Reverse Mortgage Abuse, to advocate for improved regulations.
“I learned that Financial Freedom was the absolute worst lender and servicer,” says Jolley. “They would sell these things to anyone with a beating heart. And when Mnuchin took over, their aggression only got worse.”
In 2014, CIT Group announced an agreement to acquire OneWest Bank for $3.4 billion. For six years of ownership, Mnuchin’s personal payout was a reported $10.9 million.
The 2015 merger of OneWest with CIT, which Mnuchin helped engineer, put the combined institution over a key regulatory threshold of $50 billion in assets, requiring bank officials to clear the unusual hurdle of public hearings staged by the OCC.
Armed with data on OneWest’s foreclosure and banking practices, advocacy groups like the California Reinvestment Coalition (CRC) turned a typically dry, procedural hearing into an indictment of the bank’s record. Sandra Jolley and other reverse mortgage victims were among those who testified against the merger, citing OneWest’s ownership of sleazy reverse mortgage company Financial Freedom.
“It was probably the largest protest of a bank merger in U.S. history,” says CRC’s deputy director, Kevin Stein.
Community groups also charged that the bank was failing in its obligations to communities of color — both by locating its branches overwhelmingly in white neighborhoods, and by putting forward a woefully inadequate plan to increase lending in low- and moderate-income neighborhoods. One of the factors regulators must consider when banks merge is whether the institutions are meeting the requirements of the Community Reinvestment Act (CRA), a federal law passed in 1977 in response to the history of redlining in black and Latino communities.
As part of its application, OneWest had outlined a plan for $5 billion of lending in low- and moderate-income neighborhoods over four years. CRC Executive Director Paulina Gonzalez charged during the hearings that the effect of the public subsidies the bank had received from the FDIC and TARP funds “dwarfs the measly CRA plan offered by the bank and dwarfs the public benefit of this merger.”
The merger went through regardless. In November 2016, CRC and Fair Housing Advocates of Northern California filed a fair housing complaint with the Department of Housing and Urban Development, alleging that OneWest Bank had engaged in discriminatory lending. According to data submitted by OneWest to federal regulators, black and Latino borrowers were significantly underrepresented in the bank’s lending. In 2015, for example, just 8.4 percent of OneWest’s mortgage loans in Southern California went to Latino borrowers, even though they comprised 22.4 percent of borrowers across the industry and 43 percent of the area’s population.
While new loans were few and far between, the majority of OneWest’s foreclosures in Southern California took place in neighborhoods of color. “The foreclosure to loan ratio in these neighborhoods was 9:1,” notes Stein. The coalition’s redlining complaint is still pending with HUD.
Mnuchin’s special blend of incompetence and ill intent leaves the field wide open for rampant Wall Street deregulation. In an April report, the agency boasted that it had already reduced its regulatory agenda by nearly 100 regulations. As with most reports that Mnuchin has had a hand in, the math here is a little unclear. But there are several areas where Treasury or related bodies have already pulled off some dramatic slash-and-burn.
Take the Financial Stability Oversight Council (FSOC), a 10-member body created by Dodd-Frank to identify and constrain risk in the financial system. Although Treasury only has one vote, the secretary chairs FSOC and tends to have outsized sway. In that capacity, Treasury has pushed successfully to change the designation criteria for “systemically important financial institutions” that are subject to enhanced supervision. The process began with a vote to de-designate AIG, freeing the insurance giant from stricter prudential standards a decade after the Fed rescued it from bankruptcy.
“The original test for designation was, ‘If a bank got in trouble, would it create a threat to the financial system?’” says Marcus Stanley, policy director for Americans for Financial Reform. “They’ve changed that to, ‘Do we think it is likely to get in trouble?’ even though the whole point was to regulate banks before they’re about to fail.”
The Community Reinvestment Act is also in the crosshairs of Mnuchin’s Treasury. After months of alluding to plans to “modernize” the CRA, in April Treasury released a report proposing sweeping changes to its implementation. Among other suggestions, Treasury wishes to expand the “universe of CRA-eligible activities” and increase the “clarity and flexibility” of CRA examinations, even though banks almost always receive passing grades from regulators as it is.
The Office of the Comptroller of the Currency (OCC), an independent bureau within Treasury that charters, regulates and supervises all national banks, is now taking the lead on rewriting CRA rules, based on Treasury’s guidance. Though Trump’s other banking regulators have blanched at undermining regulations to ensure low-income communities aren’t left behind by the financial system, the OCC under its new head Joseph Otting is thundering ahead on its own.
Who is Joseph Otting? His previous experience includes — wait for it — helming OneWest bank during its 2015 merger. This put both OneWest CEOs in its short history, prior to being swallowed up by CIT, in key regulatory positions in the government.
A career banker without an advanced degree or any previous government experience, Otting has made no bones about where his sympathies lie. “I like bankers,” was his opening line in an April speech before the Independent Community Bankers of America. In what’s now standard nomenclature for Trump regulators, Otting went on to describe banks as his “customers,” and his own job as improving “responsiveness” to them.
That responsiveness was on full display when, in the wake of the Wells Fargo fake account scandal, Otting’s OCC investigated sales practices at major banks and found over 250 separate problems that needed fixing, including several banks opening accounts in their customers’ names without consent. But OCC refused to make these findings public, instead asking politely that the banks please refrain from lawbreaking if they can help it.
The Office of the Comptroller of the Currency has broad leeway to make far-reaching deregulatory changes. In August 2017, the OCC announced that it was beginning the process of reforming the Volcker rule, another Dodd-Frank regulation that aims to prevent banks that accept taxpayer-insured deposits from making risky market bets. According to Reuters, the changes being considered include shifting the burden of proof for compliance to regulators and narrowing the definition of which funds are considered risky.
This year, the OCC has also proposed amendments to the rules governing banks’ leverage ratio, or how much debt they can assume relative to their capital. After lifting a longstanding prohibition on partnerships between national banks and payday lender ACE Cash Express, giving the chain a means to circumvent state-level interest rate caps, in May the OCC issued guidance essentially encouraging banks to start hawking their own payday loans. And in July, the OCC began accepting applications for so-called “fintech” firms — online lenders and other tech companies — to acquire national bank charters, which could immunize them from state consumer protection laws. The move came hours after Mnuchin’s Treasury Department released a report recommending the action.
“It’s my viewpoint that consumers should have more choices,” said Otting in a press briefing.
All this is shaping up to be Mnuchin’s next “Forrest Gump” moment. He and Otting are within arm’s reach of unraveling the post-2008 rules that hemmed them in, albeit insufficiently, as bankers. But the assault on key regulatory cornerstones like the Community Reinvestment Act signals that they’re preparing to go much further. All told, Mnuchin’s Treasury could easily roll back the clock on not just years, but decades, of reforms.