Dems Will Jab at Mnuchin, But Will They Land Any Punches?

Mortgage

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Treasury Secretary-designate Steven Mnuchin’s time as OneWest’s chief executive — and the bank’s controversial foreclosure practices — is expected to draw ample attention at his nomination hearing Thursday, but it will not be the only issue to come up as senators try to gauge how he would lead President-elect Trump’s financial policies.

Thanks to Democrats rewriting confirmation rules when they were in control, the Senate’s current GOP leaders only need a majority of the chamber to approve Mnuchin. But analysts say how well Mnuchin answers questions will still matter, particularly if some Republicans have reservations about the nominee. The Senate Finance Committee hearing could also provide a window into Mnuchin’s views on key financial services issues, such as housing finance reform and the fate of the Financial Stability Oversight Council.

“The base case is he gets confirmed. The president usually gets his or her nominees for top cabinet positions pretty quickly. But Mnuchin is a wild card…If he performs poorly that is the only point where his confirmation becomes in doubt,” said Ed Mills, a managing director and analyst at FBR Capital Markets.

OneWest Bank

At the start of the crisis, Mnuchin led a team of investors to acquire assets of the failed IndyMac Bank in Southern California and formed OneWest. But the new bank garnered a reputation for aggressively foreclosing, and has been at the center of Democrats’ efforts to put Mnuchin in a negative light.

“OneWest, I would expect is going to be a centerpiece,” of the hearing, said Kurt Walters, spokesman for the progressive group Demand Progress Action.

Demand Progress, the Progressive Change Campaign Committee and Allied Progress Action are running ads featuring stories of borrowers who were foreclosed on by OneWest in the lead-up to Mnuchin’s hearing.

Democrats have gone so far as to call Mnuchin the “Foreclosure king” and launched a web portal for consumers to submit anecdotal complaints about foreclosure experiences with OneWest during the mortgage crisis, in addition to holding events on Capitol Hill with former OneWest borrowers. Consumer groups have particularly focused on how OneWest, which was sold to CIT, foreclosed on seniors with reverse mortgages. (Mnuchin became vice chairman of CIT.)

But with all the attention on the bank’s foreclosure practices, Mnuchin is likely preparing his defense for what could be aggressive questioning, observers said.

“He will come with stats on the number of modifications he did and battle numbers with numbers,” said Isaac Boltansky, a policy analyst with Compass Point Research Trading.

Clifford Rossi, an executive-in-residence and Tyser Teaching Fellow at the University of Maryland’s business school, said Mnuchin is a “detail-oriented kind of guy.”

“If I were in his shoes I would try and have as many facts and figures about the programs that were in place then to try to deflect a lot that is coming at me,” Rossi said.

But Democrats are likely also doing their homework. Sen. Elizabeth Warren, D-Mass., who is not on the Finance Committee but has been leading the opposition against Mnuchin, sent a letter with other Democrats last week to committee Chairman Orrin Hatch, R-Utah, requesting that former OneWest borrowers be allowed to testify against Mnuchin.

A spokesperson for the Finance Committee said Hatch is not going to fulfill the Democratic Senators requests because “Chairman Hatch is committed to holding nominees to the same, bipartisan vetting and hearing process afforded to [President] Obama’s nominees, which has been standard practice at the Senate Finance Committee for years.”

Mills said Democrats “want to make [Mnuchin] a bogeyman.”

“Policy differences are not going to be the reason a Republican decides to not vote for Mnuchin. It will be the way he defends his background or what they try and make stick to his background,” Mills said.

But Boltansky said it is highly unlikely that the foreclosure claims will threaten his appointment.

“I don’t think he needs to counter any of the foreclosure claims in order to get confirmed,” the analyst said. “If this were a 60 [vote] threshold, my comments would be completely different.”

Housing Finance, FSOC

But the hearing will also be the best opportunity to date to hear Mnuchin’s thoughts on financial services policy issues he would likely face as Treasury chief. His positions remain largely unknown.

In particular, Mnuchin raised eyebrows last month when he told Fox Business, “We’ve got to get Fannie [Mae] and Freddie [Mac] out of government ownership.” The two government sponsored-enterprises have been in government conservatorship since 2008.

Sen. Sherrod Brown, D-Ohio, sent a list of questions to Mnuchin in December asking him a number of policy questions including what he believes the government’s role in housing finance should be.

Mnuchin never responded to the letter. But Brown is one of six lawmakers set to question Mnuchin Thursday who also sit on the Senate Banking Committee. They are almost certainly interested in where the nominee comes down on the future of housing finance.

Other policy areas ripe for questioning are tax reform and what Mnuchin believes to be the appropriate role of the Financial Stability Oversight Council.

“I would like to hear what Mnuchin wants to do with FSOC since the Treasury secretary has to be on board with any major action the council takes,” said Justin Schardin, director of the financial regulatory reform initiative at the Bipartisan Policy Center. “Does he see an active role for FSOC or will he turn it into just a forum for regulators to get together and talk and will he support de-designating [systemically important financial Institutions]?”

Schardin also said we could find out if Mnuchin aligns with Trump’s international policy.

“Trump has signaled that he may pull out of certain international agreements,” said Schardin. “It would be good to know if Mnuchin would be committed to global efforts like Basel and the global financial stability board.”

Conflicts of Interest

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