I usually try to avoid dwelling on individual anecdotes because they are often an attempt to make an emotional (rather than rational) appeal. But I have to admit that this one grabbed me.
Two years ago, OneWest filed foreclosure papers on the Lakeland, Florida, home of Ossie Lofton, who had taken a reverse mortgage, a loan that supplies cash to elderly homeowners and doesn’t require monthly payments.
After confusion over insurance coverage, a OneWest subsidiary sent Lofton a bill for $423.30. She sent a check for $423. The bank sent another bill, for 30 cents. Lofton, 90, sent a check for 3 cents. In November 2014, the bank foreclosed.
In October, lawyers at the nonprofit Florida Rural Legal Services contested OneWest’s foreclosure and asked the Polk County Circuit Court for a jury trial.
“I don’t know that they’re the worst, but I certainly think it’s criminal the way these servicers are treating elderly homeowners,” said Lynn Drysdale, an attorney representing Lofton.
That bank, OneWest, is run by the guy our president-elect just nominated to be the Treasury Secretary – Steven Mnuchin.
But the story of OneWest is also instructive on a larger scale. It starts in the summer of 2008 when the FDIC took IndyMac into receivership (as they do with failing banks). Here is how the problem started:
The company had specialized in high-risk loans, including so-called liar loans to borrowers with no money or income, and had become a symbol of the Wall Street recklessness that had sent the country into recession and millions of homeowners into default.
As is customary for the FDIC, they sold the bank to investors about six months later.
The Pasadena, Calif.-based bank will be controlled by IMB Management Holdings, led by Steven Mnuchin, who is chair and co-chief executive of Dune Capital Management. Terry Laughlin, who headed Merrill Lynch Bank & Trust, will serve as chief executive of IndyMac.
Estimates at the time of the sale were that the bank’s failure would cost the FDIC between $8.5 billion and $9.4 billion, but its not clear if those figures include the $1.2 billion paid to the investors who bought the bank to cover some of the cost of failed mortgages.
It’s interesting to pause at this point in the story and point out that there were a lot of recommendations from liberals at the time of the financial crisis that the government should use a process similar to the one employed by the FDIC to take the large financial firms (later classified as “systemically important financial institutions”) into receivership. The Obama administration determined that they didn’t have the legal authority to do so with companies that included divisions that weren’t covered by the FDIC (something that was later included in the Dodd-Frank legislation). But at a cost of somewhere in the neighborhood of $10 billion for a much smaller entity like IndyMac, it is important to recognize that doing so would have likely cost more than the so-called “bailout” those institutions got from TARP. Beyond that, as this story makes clear, it wouldn’t have changed much.
IndyMac became OneWest and went on to foreclose on 36,000 mortgages. The story about Ossie Loften up above represents just one of them. And how did Mnuchin fare?
Last year, OneWest closed on a $3.4 billion, hard-won deal to merge with CIT Bank, overcoming challenges from fair-housing advocates, civil rights groups and homeowners. Mnuchin took a reported $10.9 million payout and remains on CIT’s board.
After watching Steve Bannon’s documentary yesterday Generation Zero, in which there was much railing and gnashing of teeth about the kind of greed exhibited by Mnuchin and his partners, one has to wonder how the president-elect’s chief strategist feels about his boss’s choice for Treasury Secretary. I suspect that he’s not that worried about how Mnuchin profited from this venture, especially in light of this:
Problems at OneWest persist, Stein said. Last month, the coalition complained to the Department of Housing and Urban Development that the lender was failing to serve African-American and Latino communities in its market.
According to Bannon’s framework, Mnuchin was simply bringing capitalism to the inner cities.