Foreclosed Borrowers Poised to Haunt Mnuchin's Nomination
President-elect Donald Trump's choice of Steven Mnuchin as Treasury secretary set off a flurry of angry responses from foreclosed homeowners that are likely to haunt the former CEO of OneWest Bank at his confirmation hearing next year.
James Beekman, an Air Force veteran who owns a car wash in Florida, and has battled OneWest for years in court, denounced Mnuchin on Twitter, calling him "a liar and a crook."
Teena Colebrook, whose Hawthorne, Calif., home was foreclosed on in 2015, was shocked that Mnuchin was named to the Treasury post. She alleges the bank never gave her a proper accounting of her loan and refused to offer a loan modification.
"Why would they put someone like Mnuchin in charge at Treasury when the bank he ran could not even get the figures right on my mortgage?" said Colebrook. "How can somebody like that be in charge of the Treasury?"
The two are part of a cadre of troubled homeowners who are voicing their stories on social media and in the press. While the accusations alone are unlikely to sink Mnuchin's nomination, they are poised to politically weaken the Treasury secretary-designate before he even takes office and allow Democrats to tag the Trump administration with the sins of the financial crisis.
Yet there are open questions about whether Mnuchin is responsible for the foreclosures, with some arguing that his bank properly followed federal guidelines to determine who would receive a loan modification.
At issue is Mnuchin's involvement with a group of hedge fund billionaires that included George Soros and John Paulson, now a Trump policy advisor. In 2009, the group bought the assets of failed mortgage lender IndyMac from the Federal Deposit Insurance Corp. for just $1.5 billion. The FDIC has valued IndyMac's assets at $22.7 billion.
The agency seized IndyMac in 2008 and was desperate to find a buyer for the failed thrift. It created a lucrative loss-sharing agreement whereby the FDIC absorbed the first 80% of losses on a portion of IndyMac's loans. OneWest turned a profit of $1.6 billion just a year after taking over IndyMac and the FDIC deal was credited with delivering its outsized earnings.
A complication for OneWest borrowers was that even though the bank was required to offer loan modifications, only 25% of the former IndyMac's loans were covered under the loss-share agreement. The thrift sold off a majority to private investors, who had no requirement to modify.
The FDIC created a modification program specifically for OneWest borrowers that later became a model for the Treasury Department 's Home Affordable Modification Program, known as HAMP. That program was first introduced in 2009 but was not adopted by most servicers until the government beefed up incentives to help borrowers avoid foreclosure.
"The big effort was to try to determine when it was appropriate to foreclose or do a loan modification on a net present value basis and which option provided the greater return," said John Bovenzi, the former FDIC chief operating officer who was IndyMac's CEO during receivership and is now a partner at Oliver Wyman.
Laurence Platt, a partner at Mayer Brown, said the FDIC essentially controlled the way that OneWest considered borrowers for loss mitigation before foreclosing.
"In virtually all circumstances, the Munchin-owned [OneWest Bank] followed federal guidelines for loss mitigation and foreclosures," Platt said. "If there were foreclosures under his watch, it was because the federal government guidelines found that there were no reasonable alternatives to foreclosure."
But some foreclosed borrowers have alleged in lawsuits that OneWest under Mnuchin used bait-and-switch tactics, in which the bank promised to give loan mods to borrowers but only if they defaulted. Those borrowers claim that after they defaulted, OneWest denied them loan modifications and instead filed for foreclosure, causing thousands to lose their homes and equity, which for some amounted to their entire life savings.
"Most of us just wanted to keep our homes and get the same help the banks were getting from taxpayers," said Colebrook, 59, who alleges OneWest told her to default and then refused to restructure her loan. "Instead, they labeled us [homeowners] as deadbeats and stole our homes."
Beekman has a stack of legal documents from a years-long legal battle with OneWest despite winning a 2013 trial against the bank.
"Even though a judge ordered OneWest to modify my mortgage and awarded me all my legal fees, which was a total shocker, OneWest never fixed the errors or gave me an accurate accounting, and they hired more lawyers to try to steal my house," said Beekman, who has filed three lawsuits against OneWest for fraud and racketeering.
In 2013, Colebrook, Beekman and dozens of other homeowners, many of whom now know each other through their shared experiences, sent an open letter to Congress complaining of OneWest's "deceitful, immoral, illegal, criminal and fraudulent practices." Both borrowers said no lawmakers have ever contacted them.
Seniors also have complained that OneWest refused to modify reverse mortgage loans that were in default even though the loans are insured by the Federal Housing Administration, a unit of the Department of Housing and Urban Development.
"In all these different scenarios, Mnuchin's businesses made a lot of money at the expense of real people," said Alys Cohen, a staff attorney at National Consumer Law Center. "OneWest made a business decision not to let anyone save their home once they went into foreclosure."
To be sure, OneWest was the only bank that completed the Independent Foreclosure Review, an initiative by the Office of the Comptroller of the Currency and Federal Reserve that stemmed from a 2011 consent order that alleged 14 servicers engaged in bad servicing and foreclosure practices.
The review found that OneWest had an error rate of 5.6%. Of the bank's total 192,000 pending foreclosures and foreclosure sales in 2009 and 2010, just 10,781 loans had errors and almost all of the errors were in the lowest category, the OCC said.
Borrowers who were harmed by a multitude of foreclosure errors received a wide range of payments under the review, from as little as $1,000 to a maximum of $125,000. OneWest was one of four banks, including Bank of America, Citigroup and PNC, that did not pay any penalty to federal regulators because they completed corrective actions under the consent order.
But the statistics from the foreclosure review do not provide much solace to foreclosed borrowers.
One Marin County homeowner, who is a banker and did not want his name used because he works in the industry, said he was angry that Mnuchin was named Treasury secretary because OneWest reneged on its promises to modify his waterfront home that had a $680,000 mortgage in 2010. He made $30,000 in payments under a forbearance plan, but OneWest ultimately foreclosed and sold the home a year later for $1.4 billion, he said.
"I really felt that being a banker when they told me I had a modification, there was credibility there," he said. "They gave me three different modifications that I could have made easily and reneged on every one of them."
Despite opposition from foreclosed homeowners, seniors and consumer groups, regulators last year approved the sale of OneWest to Cit Group for $3.4 billion. The deal was one of the most protested mergers, with 21,000 people and 100 groups registering opposition, said Kevin Stein, deputy director of the California Reinvestment Coalition. The group estimated that CIT and OneWest received roughly $5 billion combined in government subsidies while borrowers got little.
Last month, two consumer advocacy groups filed a redlining complaint against CIT Group's OneWest Bank for making few mortgages to minority borrowers and operating branches in predominantly white neighborhoods.
"The merger should not have been allowed or stronger conditions should have been imposed," Stein said.