Did Trump Treasury Pick Steve Mnuchin Cause a Mortgage Lender’s Collapse, or Was It Democrat Chuck Schumer?

As incoming President Donald Trump takes office, many Democrats are focused on attempting to spike the confirmations of appointees to his cabinet. One pick in particular who will likely not have smooth sailing in Senate confirmation hearings is Treasury Secretary pick Steve Mnuchin.

Mnuchin’s alleged role in the 2008 collapse of California mortgage lender IndyMac has brought the threat of public scrutiny from notoriously liberal Senators Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts. Warren has created a page on the United States Senate website naming Mnuchin a “foreclosure king” alleging he threw thousands of homeowners out into the street when his company bought IndyMac in 2009.

But evidence appears to show that the real cause of IndyMac’s collapse was actually none other than Democratic Senator Chuck Schumer of New York. The overheated real estate bubble of 2008 had begun to pop as investors and financial institutions realized that mortgage-backed securities were actually far less secure than their sellers had claimed, and real estate speculation nationwide started to crash.

On June 26, 2008, Schumer gave a copy of a letter he had sent to banking regulators to reporters, in which Schumer wrote he was “concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers.”

The New York Times reported that upon hearing of this letter “IndyMac’s customers, afraid their savings might disappear, stampeded retailers and demanded their money.” Over the course of the next 11 days, depositors withdrew a jaw-dropping $1.3 billion from the struggling financial institution.

At the time, articles in the media chided Schumer for what was going on at the bank. The Los Angeles Times reported on July 2 that “the letter stunned some Wall Street analysts, who said that Schumer was in effect sealing the lender’s fate by raising the prospect of failure.”

Even the government’s Office of Thrift Supervision (OTS) lay the blame at Schumer’s feet, writing in a July 11 statement, “the immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York.”

The director of the OTS, John D. Reich, said, “When a member of the United States Senate makes such a public statement, it doesn’t take much to frighten the depositors of an institution. It was an unprecedented act on the senator’s part, and the result speaks for itself.”

John D. Hawke, the U.S. Comptroller of the Currency, declared that Schumer’s action was “incredibly stupid” and that “leaking his IndyMac letter to the press was recklessly and grossly irresponsible. I don’t see how he can be trusted with confidential information in the future.”

Two days after Schumer released his letter, IndyMac filed notice with the Securities and Exchange Commission (SEC) regarding its endangered condition. “As a result of Sen. Schumer making his letters public and the resulting press coverage, we did experience elevated customer inquiries and withdrawals in our branch network last Friday and on Saturday of roughly $100 million,” the bank stated.

Just days later, the bank announced it would lay off more than 3,600 workers and stop issuing loans. CNN/Money calculated that 10,000 of the bank’s customers had deposits that were worth more than the standard FDIC guarantee of $100,000. Bank regulators estimated that collectively, customers lost more than $500 million.

Jerry Bowyer, an economist with Benchmark Financial Network, stated to the website Daily Caller that “we know that Schumer’s letter destroyed that bank… [It was a] nuclear bomb… a lot of people lost their jobs. Depositors were terrified. It was destructive of the local economy.” Bowyer believes the collapse of the bank ended up costing taxpayers more than $4 billion.

Typically when a bank is in dire straits, the FDIC privately canvasses other financial institutions to try and locate a buyer. But in this case, Schumer’s letter scared potential acquirers of the bank.

The New York Times confirmed that “IndyMac was being shopped to potential investors this summer, but their interest disappeared after Mr. Schumer’s comments”, according to Timothy T. Ward, deputy director of examinations, supervision and consumer protection at the O.T.S.

In the fall of 2008, Bloomberg News reported that “very few institutions or individuals were looking to go long on mortgages and mortgage-backed debt. [Steve] Mnuchin was one.” As it turned out, a group led by Mnuchin made a bid for IndyMac that was $800 million higher than the bank’s next best offer.

Warren and other activists claim that Mnuchin’s group was able to acquire IndyMac (now renamed OneWest) on the cheap and that it subsequently illegally evicted homeowners. But an audit in July 2011 of OneWest by the FDIC’s Inspector General calculated that the first $2.5 billion worth of losses OneWest was subject to would have been absorbed by Mnuchin’s group.

It concluded that “the FDIC competitively bid IndyMac assets” and that the deal “represented the least-cost transaction” as far as the U.S. government was concerned.

Besides, if Mnuchin had been greedy, that would have meant his partners in the deal were as well. Surprisingly, those partners included left-wing billionaire investors John Paulson (who had given $15 million to the Committee for Responsible Lending, a progressive housing group) and George Soros (who’s well known for his liberal political activism and donations to social justice organizations, among other causes).

According to a national mortgage trade bulletin in October 2010, OneWest was one of the first lenders in the country to implement the Home Affordable Modification Program (HAMP), an initiative sponsored by the Obama administration. This program was designed to allow homeowners to make adjustments to their mortgages that would make them more affordable.

In more than 98 percent of cases, OneWest was able to appropriately solicit borrowers and process loan modifications on behalf of these homeowners, reported the FDIC’s Inspector General. A study in September 2013 by the Treasury Department said that “OneWest had the highest effectiveness in reaching 96% of delinquent borrowers and was first in the industry [with] a 94 percent rate of homeowners able to convert their trial modifications to permanent modifications.”

As for Senator Schumer, he’s never accepted responsibility for IndyMac’s collapse, instead accusing the government’s OTS. “OTS ought to stop pointing false fingers of blame and start doing its job to protect the future of the banking system so that there won’t be other IndyMacs,” he railed at a 2008 news conference.

Of course, when you’re one of the Democratic Party’s most powerful senators, it’s easier to denounce nameless bureaucrats than accept fault as your own.


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