Henhouse, ho!

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Remember Robo-Signing at Banks? Neither Does Mnuchin

Joe Nocera is a Bloomberg View columnist. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is the co-author of "Indentured: The Inside Story of the Rebellion Against the NCAA."
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The question could not have been more straightforward: During the foreclosure crisis that began after the housing bubble burst, did OneWest Bank engage in the illegal practice of "robo-signing" to speed foreclosures of homeowners? OneWest was formerly known as Indy Mac, the troubled thrift taken over by the federal government and sold to a group led by Steven Mnuchin, President Donald Trump's nominee to be Treasury secretary.

Mnuchin's answer was straightforward, too. "OneWest Bank did not robo-sign documents," he replied in a letter to the Democrats on the Senate Finance Committee who had repeatedly pressed him during his confirmation hearing. "And," he added, "as the only bank to successfully complete the Independent Foreclosure Review required by federal banking regulators to investigate allegations of 'robo-signing,' I am proud of our institution's extremely low error rate."

As has so often been the case in the early days of the Trump administration, Mnuchin's answer isn't remotely true.

Robo-signing, you'll perhaps recall, was the term used when employees at mortgage servicing companies signed dozens -- sometimes hundreds -- of foreclosure documents a day without insuring that they were correct, as the law requires. Most of the time, they barely glanced at the documents they signed.

At the time, the government was trying to persuade banks to modify mortgages so that homeowner with onerous subprime terms could keep their homes. But many mortgage servicers did just the opposite: They foreclosed as quickly as possible on as many homeowners as possible. Their fee structure was such that the financial rewards of foreclosing were far higher than the rewards for modification.

That OneWest ran one of the most aggressive foreclosure machines in the country during the time Mnuchin was its chairman and chief executive is undeniable. (Consumer advocates called him the Foreclosure King.) Seven percent of the loans OneWest inherited from Indy Mac were overseen by the government; the bank's practices with those loans was aboveboard, I'm told. But the other 93 percent were securitized subprime loans that the government did not oversee -- and that was a different story.

Just a few days ago, the Columbus Dispatch ran an article analyzing OneWest's foreclosures in just one county (Franklin) in one year (2010). It found clear evidence of robo-signing, including one attempted foreclosure signed by a OneWest employee named Erica Johnson-Seck. The year before, Johnson-Seck had testified under oath that "she did not read documents she was signing, taking only about 30 seconds to sign her name," the Dispatch reported.

OneWest employed other sleazy foreclosure practices. For instance, it engaged in "dual tracking" -- which meant pursuing foreclosure at the same time it claimed to be working on a mortgage modification with a homeowner. Mark Dann, a former Ohio attorney general who now works with troubled homeowners, told the Dispatch that OneWest was a "major offender" that used fabricated documents and other tactics "that caused unbelievable devastation in people's lives." Elizabeth Lynch, a lawyer with MFY Legal Services in New York, who spent years trying to help people keep their homes, told me that OneWest "was notoriously difficult to deal with."

But here's the clincher: In 2011, the man who now says his bank never robo-signed documents signed a consent order with the Office of Thrift Supervision, which had accused it of -- you guessed it -- robo-signing. Though it promised the OTS that it would take specific steps to clean up the problems, two years later, the California attorney general's office wrote an internal memo accusing the bank of "false filings and unauthorized conduct." (The memo was leaked in mid-January.) 

As for that "independent foreclosure review" Mnuchin mentioned in his letter to the Democratic senators, it's not exactly a badge of honor. Rather, it's a procedure imposed on banks that have signed consent orders with the federal government. In other words, you have to be a bad actor to merit such a review.

After some partisan haggling on Monday, the Senate Finance Committee scheduled a Tuesday morning vote on Mnuchin's nomination. The committee's recommendation would send the nomination to the full Senate, where odds are high that the Republican majority will make Mnuchin the next Treasury secretary.

During a meeting Monday with small-business owners, Trump described the financial regulation brought about by the 2010 Dodd-Frank law as a "disaster." He added, "We're going to be doing a big number on Dodd-Frank." As Treasury Secretary, Mnuchin would lead the effort to rewrite -- or eliminate -- Dodd-Frank.

Thus, yet again in this administration, will the fox wind up guarding the henhouse.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Joe Nocera at jnocera3@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net