In 2011, at the peak of the housing crisis, regulators for the Treasury Department ordered Steve Mnuchin and directors at OneWest Bank in California to fix the bank’s questionable handling of home loans. In a consent order filed that year by the department’s Office of Thrift Supervision, regulators accused the bank of using “unsafe or unsound” methods for dealing with mortgage loans and foreclosures in 2009 and 2010. They found that bank employees and third-party providers lied in foreclosure paperwork filed in state and federal courts about information related to the ownership of many home loans, money due on the loans, and the fees chargeable to the borrower. They also accused employees of filing court documents with signatures that were not notarized and initiating foreclosures and bankruptcies without all the necessary paperwork. The office additionally claimed that the bank “failed to devote to its foreclosure processes adequate oversight, internal controls, policies, and procedures, compliance risk management, internal audit, third party management, and training.”
As a result of the examination, the Treasury Department’s Office of Thrift Supervision (which later merged into the Office of the Comptroller of the Currency) ordered the bank to work with an independent monitor to address these issues. That involved requiring Mnuchin and other bank executives to write rules about how employees are supposed to work with borrowers to handle foreclosures, creating a process to ensure employees’ statements in court documents are accurate, plus a long list of other rules to make sure employees don’t break the law. Regulators found the same problems at the nation’s largest mortgage lenders, including Bank of America and Citibank, and ordered them to do the same. OneWest complied with this legal order and in 2015, the Treasury Department released the bank from the monitoring agreement.
Mnuchin—a former Goldman-Sachs partner—is now preparing to lead the same department that once reprimanded him for his banking practices. The Treasury Department’s findings mirror some of those found by state prosecutors in a 2013 memo leaked this week to the The Intercept, which alleges that Mnuchin’s bank broke foreclosure rules and engaged in “widespread misconduct” during the housing crisis. In the confidential memo, consumer-protection lawyers for the California attorney general’s office claimed that employees at OneWest Bank were manipulating home auctions, failing to properly notify homeowners about foreclosure proceedings, and backdating signatures, possibly to speed up foreclosures. Of the 913 subpoenaed loan documents they reviewed, they found that 909 were likely backdated.
Barney Keller, a spokesperson for Mnuchin, told me in an email that the Treasury Department’s findings are “garbage” and the leaked memo is “meritless.” Regarding the regulatory findings, he said that “the exact same consent order was agreed to by all 14 of the major financial institutions that were heavily involved in the mortgage industry. This order required all of the institutions to complete the independent foreclosure review, which OneWest was the only bank to successfully complete.” While this is true, it’s important to note that, as a result of the review, OneWest still had to pay roughly $8.5 million in remediation to more than 10,000 customers for “errors that resulted in financial harm.” Keller added that Mnuchin had "helped modify over 100,000 mortgages he did not even originate and in thousands of cases even reduced borrower principal." Of course, banks in many cases were already required to do that.
Mnuchin’s investment in OneWest Bank was a profitable one. He purchased the failed Pasadena-based bank, then known as IndyMac, in March of 2009 and renamed it OneWest. The purchase came with tens of thousands of troubled mortgage loans, most of which were adjustable-rate. These mortgages had monthly payments that ballooned during the housing crisis and led many homeowners to default. When prosecutors sent the confidential memo detailing their allegations to California’s then-Attorney General Kamala Harris in 2013, OneWest had foreclosed on 35,000 homes in the state and was in the process of foreclosing on another 45,000.
The results of the state’s investigation match many of those highlighted by the Treasury Department’s regulators, though California’s prosecutors went a step further by alleging that the bank was breaking the law, specifically the state’s Unfair Competition Law. In their memo, prosecutors for the state urged Harris, the attorney general, to sue the bank for unfair business practices, but she declined to take on the case, according to The Intercept.
A review of federal court records shows that more than 800 lawsuits were filed against OneWest while Mnuchin owned the bank. About a third of those lawsuits came from homeowners who claimed that the bank improperly foreclosed on their properties. A recurring complaint was that the bank didn’t give owners a chance to modify their loans to avoid losing their homes, something the federal government required the banks to do.
In a $5 million, class-action lawsuit filed in 2012, more than 100 homeowners sued OneWest Bank for refusing to modify their loans even though they met all the program’s requirements under the law, they claimed. They also accused bank staff of encouraging them to default on their mortgage payments to qualify for the loan-modification program, and telling them that the bank was missing documents that homeowners said they had already sent. “Because of OneWest’s breach, [plaintiffs] have been injured, including suffering negative credit consequences and some losing their homes through foreclosure sales that should have never occurred,” the complaint states. The bank, now under new ownership, settled the case this past August for an undisclosed amount. Other cases against the bank were dismissed or settled, and several remain open.
In 2015, Mnuchin sold the bank, which Bloomberg estimates earned him $380 million in personal profit. It was a lucrative investment that now poses a huge hurdle for him during the confirmation process to become Treasury Secretary. Senator Ron Wyden, the lead Democrat on the committee that will hold his confirmation hearings, told The Wall Street Journal last month that Mnuchin has a “history of profiting off the victims of predatory lending.” But while the hearings might become heated, if Mnuchin has enough support from Republicans, in the end that heat won’t really matter.
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