“The Federal Government Actually Paid Him”: How Steve Mnuchin Profited from the Housing Bust

Web ExclusiveOctober 15, 2019
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In his new book “Homewreckers,” investigative reporter Aaron Glantz looks at the devastating legacy of the housing bust and the key players who benefited as millions of people lost their homes and savings. A prominent figure in the book is Steve Mnuchin, Donald Trump’s current treasury secretary, who at the time ran OneWest Bank and oversaw so many foreclosures he would later be dubbed “the foreclosure king.” Glantz says Mnuchin’s bank was even “subsidized by us, the taxpayers,” for kicking people out of their homes. “He struck a deal with the federal government where the federal government actually paid him when he foreclosed on families to mitigate his losses. We paid him, his group, more than $1 billion.” Glantz says there were many “very senior people” inside the Obama administration who pushed for an alternative response to the housing bust, one that bailed out homeowners rather than Wall Street, but he says that advice was consistently ignored.

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman, with Part 2 of our conversation with Aaron Glantz, senior reporter at Reveal and The Center for Investigative Reporting, his new book called Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream.

Aaron, you’re — in Part 1 of this discussion, I ended by asking what shocked you most, but talk about what motivated you to write this, the human tragedies that we’re seeing right now, and not just the role that Trump administration officials played in what’s happened today, but what they’re doing now, as you write, to perpetuate it.

AARON GLANTZ: What motivated me was that I was sitting there in 2016, the election was underway, and I was watching Donald Trump build support with his populist message on the right, which was resonating, and I was watching Bernie Sanders build support with his populist message on the left that was resonating, which meant that the vast majority of Americans thought the system was broken. And yet the unemployment rate was low. You know, the president, Barack Obama, was telling us the economy was going great. But most people just didn’t believe it.

And so, I started to ask, “Well, what happened to all of our wealth? Why do people feel so uneasy?” And so I decided to start to look at the 8 million homes that were lost to foreclosure during the housing bust. How did we lose them? What happened to them? Because they didn’t just disappear. And our country has been like — the housing bust was so traumatic. The journalism is just stuck, right? We’re still on The Big Short, but The Big Short was a decade ago now. So I wanted to do something that brought us up to date. And then —

AMY GOODMAN: Tell us about Sandy Jolley.

AARON GLANTZ: Sandy Jolley was this woman that I found in Southern California, who — you know, just like typical American family. Her dad worked for the water department. Her mom worked at a company that made business checks. They scrimped and saved over many years. They bought this house in Thousand Oaks, which is just outside of Los Angeles. And they lived there for 30 years, until they got sold this reverse mortgage that sapped their equity. If they give — the bank gave them a little bit of cash and then kind of compounded interest every single month. And she fought to get this mortgage reversed. And then, in sequence, her house was foreclosed on by Steve Mnuchin, who’s now — his bank. He’s now Donald Trump’s treasury secretary. Then it was sold on the courthouse steps to a private equity fund, actually a shell company controlled by a private equity fund, that was founded by Tom Barrack, who is Donald Trump’s best friend. And then she ended up paying $42,000 in rent, to rent the house that her family used to own.

Then — then the story doesn’t end, because even after she moved out, she’s like, “OK, enough of this. It’s too traumatic for me to pay rent for my own house.” The house ends up being sold, along with all of these other homes that Tom Barrack bought, to this other company called Invitation Homes, which was founded by another Trump-connected billionaire, Steve Schwarzman of Blackstone, who’s worth about $15 billion. And his company now owns 80,000 homes all across the country. And they’ve started to borrow heavily against these homes, taking out gigantic mortgage-backed securities, which now are building another kind of bubble, like the one we saw, the housing bust. But what made Sandy such a good character for a book is that throughout this whole story she fought every step of the way, and eventually she won an $89 million whistleblower settlement against Steve Mnuchin’s bank.

AMY GOODMAN: Explain how that happened.

AARON GLANTZ: Well, it’s really complicated, but, basically, the nut of it is that Steve Mnuchin, as I was saying earlier, his bank — these foreclosures were subsidized by us, the taxpayers. We were backing up all these loans. And we —

AMY GOODMAN: Steve Mnuchin, the current treasury secretary.

AARON GLANTZ: That’s right, Donald Trump’s current treasury secretary. Ten years ago, when he was running a bank, he struck a deal with the federal government, where the federal government actually paid him, when he foreclosed on families, to mitigate his losses. We paid him, his group, more than a billion dollars.

But there were conditions attached to these payments. He couldn’t just like, you know, foreclose wantonly on people; he had to follow rules. For example, there was one rule related to these reverse mortgages, that if the property had decreased in value, as many of them did during the recession, that you had to offer it back to the family at the value of the loan or 95% of the appraised value, whichever was lower. Right? And there were lots of other rules, very, very complicated rules, that he was supposed to follow.

And what Sandy noticed, as she, you know, dealt with her own 10-year fight against this bank, she started to hear from lots of other families who were going through the same thing. And she became one of these, like, experts in high finance, from her position as just a regular consumer.

AMY GOODMAN: Who lost her home.

AARON GLANTZ: Who lost her home. But even after she lost her home, she still didn’t give up. It was just incredible. Just incredible. So, she’s sitting in her family home, that she’s lost to foreclosure. She’s paying rent to this private equity firm. And even then, she’s not giving up.

And so, she starts googling terms like “federal whistleblower,” and she ends up with this whistleblower attorney in Washington, D.C. She tells him, “I’ve got evidence of a massive fraud.” Whistleblower attorney in D.C. is like, “This is a little bit odd. I’m used to whistleblowers being like corporate insiders or government officials. This is just a regular homeowner in Southern California.” But he — she sends him his paperwork. He even hired a private investigator to look into her, checked out, looked through the paperwork. And anyway, he ends up bringing her to Washington. She meets with the Justice Department. She meets with the FBI. She meets with the HUD inspector general.

And eventually, the bank, Steve Mnuchin’s bank, was forced to pay an $89 million settlement, of which — that went to the taxpayers. She got $1.6 million. Of course, by that time, Steve Mnuchin was no longer in charge of this bank. He was the treasury secretary.

AMY GOODMAN: He was in charge of the entire U.S. Treasury.

AARON GLANTZ: Yes. So, he didn’t have to pay any of this $89 million. Right? He had flipped out of the bank. In fact, one of the things I write about in the book is that, you know, he — being a kind of a hedge fund guy and investment banker, he always intended to flip this bank. But when it came time to sell the bank, Steve Mnuchin lives in this apartment on — apartment building on Park Avenue, 740 Park Avenue. It’s been called the world’s richest apartment building. His upstairs neighbor —

AMY GOODMAN: Here in New York City.

AARON GLANTZ: Here in New York City. And he owns a 6,000-square-foot, two-story apartment. One of his upstairs neighbors is Steve Schwarzman, another Trump friend, who lives in a 20,000-square-foot apartment that used to be home to John D. Rockefeller Jr. And he’s the one who’s been buying up all these houses. But when Steve Mnuchin wanted to sell the bank, after, you know, it had increased in value following the recession, he actually sold it to one of his neighbors in the same building, John Thain, who is — you may remember him. He was the head of Merrill Lynch when he spent federal bailout money on a $35,000 toilet for his office. So, he was Mnuchin’s upstairs neighbor, as well. And so, he and Mnuchin —

AMY GOODMAN: So, when you want to sell banks or whatever, you just go trick-or-treating in your own apartment building.

AARON GLANTZ: Yeah, if you happen to live at 740 Park Avenue — right? — and live in an apartment that’s 6,000 square feet, which is, by the way, one of the smaller apartments in this building. But yeah, now he’s actually trying to sell this New York apartment, Mnuchin is now, because he bought a new mansion in Rock Creek Park in Washington, D.C., because he’s the treasury secretary, and it can be yours, this mansion — this apartment on Park Avenue, for the low, low price of $28 million.

AMY GOODMAN: Aaron Glantz, tell us about Theodros Shawl, why you call him typical.

AARON GLANTZ: Well, when I was a — this, like, gets me back to kind of how I got started, right? And I was — back during the actual housing bust, I was writing for the regional pages of The New York Times in the Bay Area, writing about all of the foreclosures. And I kept running into people who — they were just down on their luck. Right? They had taken on a little bit too much debt. And then something bad happened in their lives.

So, this was a man, an African immigrant living in Oakland, who had basically put his life savings into a small house in Oakland, a little bungalow, and he had spent a lot of his own money remodeling it, and even taking out some home equity loans to remodel, and he was always at Home Depot. But he was a chiropractor. He had a good job, so he was good for it. But then he got sidelined. He couldn’t work. And he ended up with mortgage payments that he couldn’t afford. So he went to his bank, and he said, “You know what? The whole economy is in a state of collapse. I would like to renegotiate my mortgage, so that it’ll lower my payments slightly.” And the bank, Bank of America, which received a $45 billion taxpayer bailout, said no to him.

So, what kind of got me going is looking at what happened after that. I mean, that’s kind of a familiar story, right? Well, what happened after that was that his house was bought by a shell company. And there was this report that came out by a local think tank in the Bay Area, where I live, that found that a huge portion of foreclosed homes in Oakland had been bought by shell companies, far more than were bought by individual families. And so then I just started to wonder, like, “Is this a national trend?” and just kind of pick away — you know, investigative reporter — pick away, pick away, and then, eventually, find the answers.

AMY GOODMAN: And you’re not just talking about homeowners; you’re talking about renters, too.

AARON GLANTZ: Well, homeowners are then becoming renters, right? And then they end up renting from these LLCs. So, you know, we have seen, in 2016, as I mentioned, the national homeownership rate reached its lowest level in more than 50 years. So that means the number of renters reached its highest level in more than 50 years. And we now have not only more renters renting from landlords, but we have new types of landlords.

So, we have 3 million homes and about 15 million apartments, that are not owned by like mom-and-pop landlords who you could call up and have come over and talk to you, and if you fall behind on your payments, you can negotiate with them. We have 15 million apartments and 3 million homes that are owned by shell companies, where if you get in trouble or you want something fixed, it can sometimes be pretty impossible to figure out even who your landlord is. You know, you’re interacting with them through like an online portal. But what happens if you have a problem that requires a human?

AMY GOODMAN: So, you mentioned Steve Mnuchin, the current treasury secretary. Just recently, his former bank, CIT, was ordered to pay an enormous redlining settlement based on activities when he was in charge. Can you talk about how this redlining works and also how the current policies are facilitating what Trump’s inner circle did in the past, and will facilitate even further wealth in the future?

AARON GLANTZ: So, I mentioned, when we were talking earlier with Juan, that when Steve Mnuchin was running OneWest Bank, together with Joseph Otting, who is now also in the administration — he’s the comptroller of the currency, which is America’s top bank cop. And he was the CEO of OneWest Bank when Mnuchin was the chairman. This is a bank that over a five-year period helped three African Americans and 11 Latino families buy homes, at the same time that its foreclosures were concentrated in communities of color.

So, a Fair Housing Act complaint was filed against this bank. I mean, Mnuchin sold this bank in 2015, right? He sold it for $3.4 billion to his upstairs neighbor, right? And now he’s the treasury secretary. But our system of justice works very, very slow. And so, only recently were claims of redlining, based on the behavior of this bank when he was in charge, finally adjudicated. And the bank agreed to a $100 million redlining settlement. So, now that — the good news is that now that, you know, Steve Mnuchin and Joseph Otting are no longer there, the bank is saying, “We are going to invest $100 million in low-income communities and communities of color.” The bad news is that Steve Mnuchin and Joseph Otting are now running the Treasury Department. And the laws that were used to make this settlement, the Fair Housing Act and the Community Reinvestment Act, are being dramatically changed during the Trump administration.

AMY GOODMAN: How?

AARON GLANTZ: So, here is, again, with this banking rules, you get into a lot of jargon. But, basically, the Community Reinvestment Act is this law passed in 1977, signed by President Jimmy Carter, and it requires that banks make an effort to lend in low- and moderate-income neighborhoods. And right now Mnuchin and Otting are going about changing all the rules that are used to enforce this law. So, for example, one of the things they’re talking about is really loosening the restrictions on whether or not banks need to have branches in low-income communities.

Another thing that’s happening — and it’s not Mnuchin and Otting who are doing this, this is over at HUD — Ben Carson is dramatically weakening the Fair Housing Act. For 50 years, there has been this concept, the jargon for it is “disparate impact.” It basically says that if you can use statistics to prove that there’s a pattern of discrimination, you don’t need like a letter from someone saying, “I don’t want to make a loan to black people.” Right? So, for example, last year, we were finalists for the Pulitzer Prize for our analysis of 31 million mortgage records, where we found that there were 61 cities nationwide where people of color were more likely to be denied for a loan, even when they made the same amount of money, tried to take out the same size loan and live in the same neighborhood. So, what Ben Carson is saying is that the rules should be changed so that if when you have a finding like that, it doesn’t prove discrimination. And, in fact, with more and more of these decisions being made by computers now and algorithms, there’s even like a special carveout that says, if the discrimination — if the bank is using an algorithm and it’s resulting in a discriminatory impact, then it makes it almost impossible to hold the bank liable. You know, so they would just say, like, “Oh, I’m sorry, the computer says — the computer says that you don’t qualify.” And that could be like a reasonable excuse.

AMY GOODMAN: What made you angriest?

AARON GLANTZ: I think that what made me angriest was actually the impotence of our government during this whole decade that led to this point — right? — that I did not realize that there was this secret story of very senior people who came constantly, at every step of the way over this 10-year period, with very good ideas —

AMY GOODMAN: From 2008.

AARON GLANTZ: From 2008, from the moment of the bust. You know, I mean, like, remember, 2008, “Yes, we can.” Right? Seems like a long time ago now, right? “Yes, we can. We can change things.” Obama comes in, right? Bush is gone. And all these people came forward, and they said, “We don’t need to bail out the banks. We can have a program like Franklin Roosevelt did back in the 1930s to bail out the people.” And then learning that that New Deal program actually made money for the government as it helped millions — it helped a million Americans stay in their homes, created the 30-year fixed mortgage, and then how, even when foreclosures happened, this government-run bank sold them off one at a time to individual families instead of in bulk to speculators, which is what happened over the last decade. To know that there were like very senior people in the room who were making this argument the whole time, who were just ignored every step of the way.

AMY GOODMAN: And this is all under Obama.

AARON GLANTZ: This is all under Obama. So what we have is, during the Obama years, we have decision after decision being made to give benefits to these homewreckers instead of everyday Americans. And then, with Trump, they end up in charge, running the country themselves.

AMY GOODMAN: I want to thank you, Aaron Glantz. Homewreckers is the name of the book, How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream. I’m Amy Goodman. To see Part 1 of our discussion, go to democracynow.org. Thanks so much for joining us.

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