Steven Mnuchin, Donald Trump's Treasury Pick, to Address IndyMac Questions at Confirmation Hearing
January 19 2017 - 5:59AM
Dow Jones News
By Nick Timiraos
Investments tied to the foreclosure crisis are shaping up to
figure prominently in the Senate confirmation hearing Thursday for
Steven Mnuchin, Donald Trump's intended nominee for Treasury
secretary.
Mr. Mnuchin, the former Goldman Sachs executive, has touted his
experience as a regional banker during a stint turning around the
failed thrift IndyMac Bank, later rebranded as OneWest Bank. The
deal to purchase the lender from the government, rehabilitate it
and then sell it to CIT Group Inc. scored big returns for Mr.
Mnuchin and his investors.
Democrats and others have tried to characterize Mr. Mnuchin as
having profited from the crisis by foreclosing on thousands of
distressed homeowners after cutting a loss-sharing agreement with
the Federal Deposit Insurance Corp.
Mr. Mnuchin's prepared testimony for Thursday's hearing focuses
heavily on defending against that campaign. "I have been maligned
as taking advantage of others' hardships in order to earn a buck.
Nothing could be further from the truth," he says.
Republican control of the Senate allows the GOP to confirm Mr.
Mnuchin with no Democratic votes and one or two Republican
defections. But even if Democrats can't torpedo Mr. Mnuchin, they
hope to further paint Mr. Trump's cabinet as a group of plutocrats
to undercut his appeal with working-class Americans who fueled his
long-shot presidential bid.
More broadly, Thursday's hearing before the Senate Finance
Committee will give Mr. Mnuchin his first extended opportunity to
clarify his views on a range of subjects that fall under Treasury's
purview. The responsibilities of the Treasury secretary, who is
fifth in the presidential line of succession, include everything
from tax collection and fiscal policy to bank regulation, debt
management and the implementation of international sanctions.
Mr. Mnuchin earned Mr. Trump's trust during the 2016 campaign
after signing up as his national finance chairman during a period
when many Republicans still doubted the New York developer's
chances to win the White House.
Treasury secretaries in the modern era have fallen roughly into
two camps: Both the outgoing Treasury Secretary Jacob Lew and his
predecessor, Timothy Geithner, took the job after long careers in
public service but with little background in the private sector.
Others have been captains of finance or industry with broad
business contacts. Unlike other members of the latter group, Mr.
Mnuchin hasn't cultivated relationships with foreign finance
ministers or seasoned Washington policy hands.
Mr. Mnuchin also hasn't weighed in on the partisan policy
battles of the past decade, and his prepared remarks made little
reference to his policy views. Lawmakers and markets will seek
greater clarity from Mr. Mnuchin on Thursday over a series of
issues where Mr. Trump hasn't always lined up with congressional
Republicans, including infrastructure spending, tariffs and tax
policy.
Mr. Mnuchin could be asked to explain what he meant when he said
in a November interview that high-income households wouldn't
receive an "absolute tax cut" from the Trump administration, a
promise at odds with tax proposals from Mr. Trump and Republicans
in Congress.
He will likely face questions over what the administration will
do with key provisions of the Dodd-Frank financial-overhaul law,
including the Consumer Financial Protection Bureau, and new
regulations issued last year by the Treasury to prevent U.S.
companies from moving their corporate headquarters abroad to reduce
their tax bills.
One pressing need for the new Treasury secretary will be to
raise the government's borrowing limit, which has been suspended
until mid-March. After that, emergency measures to prevent the
country from defaulting could probably last through the summer.
The Treasury will also have to prepare the semiannual
foreign-exchange report due in April, in which Mr. Trump has
suggested he may take issue with what he has said is China's effort
to gain an unfair trade advantage through currency
intervention.
Mr. Mnuchin might also face questions over comments he made in
November supporting the privatization of mortgage-finance companies
Fannie Mae and Freddie Mac, which remain effectively controlled by
the Treasury as a result of their 2008 bailouts.
Financial disclosures made public last week show Mr. Mnuchin
stood to benefit as an investor from those comments, which were
made hours after his announcement as Treasury secretary-designate
and which drove up the prices of the firms' shares. Mr. Mnuchin has
pledged to divest from some but not all investments he
controls.
In testimony prepared for Thursday's hearing, Mr. Mnuchin
deflected Democrats' criticisms about OneWest's role foreclosing on
homeowners by pointing out how most of the bank's failed loans were
made long before his ownership group stepped in. He also outlined a
series of steps where he pushed regulators and mortgage trustees
for greater flexibility to resolve troubled loans.
Mr. Mnuchin took control of IndyMac in 2009 from the FDIC, which
cleansed the bank of some of its bad loans through asset sales and
write-downs. The agency agreed to share in losses with the
ownership group that Mr. Mnuchin led, and the new owners pledged to
continue the FDIC's loan-modification program, for which IndyMac
had served as a testing ground. As a large servicer of loans held
by other investors, OneWest was often bound by underlying servicing
agreements that sometimes prohibited certain loan
modifications.
In 2011, the bank was one of 16 institutions hit with consent
orders from federal regulators after they uncovered routine
deficiencies in banks' foreclosure-processing and
mortgage-recording practices.
Write to Nick Timiraos at nick.timiraos@wsj.com
(END) Dow Jones Newswires
January 19, 2017 05:44 ET (10:44 GMT)
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