By now, it is a well-established truth that the financial crisis and Great Recession struck a devastating blow to American families, draining $22 trillion from the U.S. economy. The average American household lost one-third of its wealth by the end of the recession, and one-quarter of all families lost at least 75 percent of their wealth.
Over the course of the long economic recovery that has followed the recession, more evidence has come to light showing that the wealthy reaped far more of the recovery’s benefits than everyone else. While average real income per family grew modestly at 6.9 percent from 2009 to 2012, the top wealthiest 1 percent of families captured more than 90 percent of that growth.
No story better illustrates the uneven recovery than Treasury Secretary nominee Steven Mnuchin’s bet on mortgage lender OneWest. In 2009, Mnuchin began preparing a bid to take over a troubled mortgage servicer called IndyMac. Once at the helm, Mnuchin rebranded the bank OneWest and went to work foreclosing on families, many of whom should have been able to keep their homes under a government program set up to assist struggling homeowners. Mnuchin’s bank foreclosed on tens of thousands of people, earning OneWest a reputation as a “foreclosure machine” and padding his now-estimated $620 million fortune.
This column analyzes OneWest’s activities in Arizona and details how Mnuchin profited from the turmoil of the housing crisis and the damage OneWest caused.
Mnuchin’s Arizona foreclosure machine claimed 3,678 homes
The rise of OneWest as a highly profitable mortgage bank depended, in part, on its use of questionable foreclosure practices. According to authorities in the bank’s home state of California, a yearlong investigation into OneWest produced evidence of “widespread misconduct” during Mnuchin’s tenure as CEO. The bank allegedly used illegal tactics such as robo-signing to falsify foreclosure documents, violated homeowner notice requirements and tax law, and pressured homeowners into foreclosure who sought relief through programs designed to help modify their monthly mortgage payments.
These practices had a devastating impact on families. According to data from PropertyRadar obtained by the California Reinvestment Coalition, OneWest completed 3,678 foreclosures in Arizona alone between April 2009 and October 2016. Among them were 333 foreclosures on reverse mortgages, which grant income to seniors in exchange for signing over their homes to a bank such as OneWest.
During his confirmation hearing, Mnuchin sought to position OneWest as a “loan modification machine” in contrast to the “foreclosure machine” label that critics of Mnuchin have applied to OneWest. However, there is little proof that OneWest put loan modification at the center of its business practices. For example, during his testimony before the Senate Finance Committee on January 19, Mnuchin claimed that OneWest extended 100,000 loan modifications nationwide to “delinquent borrowers to try and help them out of a bad situation.” However, OneWest actually denied two-thirds of homeowners who applied for a loan modification, and of the one-third approved, 70 percent of the offers extended to modify home loans did not translate into approved loan modifications.
Arizona home values have decreased 30 percent
The impact of the housing crisis on Arizona families was staggering. In 2006, the median value of a home with a mortgage in Arizona reached a high of $259,200—or $304,704 in 2015 dollars. But in 2007, that value began to slip, falling 46 percent to $159,700—$164,861 in 2015 dollars—by 2012. While the median value of a home with a mortgage in Arizona has recovered, it was still 30 percent lower in 2015 than at its 2006 high.
Declining home values coupled with predatory foreclosure practices forced thousands of Arizona families out of their homes. Even families that were able to stay above water and in their homes suffered. According to U.S. Census Bureau data, home equity represented about three-quarters of a median American family’s net worth in 2011. As a result, Arizona families lost a significant percentage of their wealth along with the housing market decline.
This decline in wealth was also met with a decline in incomes. In 2007, median household income for homes with a mortgage in Arizona reached a high of $70,828—$80,966 in 2015 dollars. By 2011, median income for households with a mortgage was $66,790—$70,388 in 2015 dollars—an inflation-adjusted decline of 13 percent. By 2015, income had grown slightly to $74,562—8 percent less than its prerecession high.
OneWest sold for $3.4 billion
While Arizona families struggled to recover, Steve Mnuchin was able to purchase a $26.5 million mansion in Bel Air, California. Mnuchin’s mansion was worth 134 times more than the typical home with a mortgage in Arizona in 2009. Mnuchin also owns two homes in New York, at least one other in California, and real estate in Mexico. In total, he owns at least $95 million in real estate, all of which he left off his original financial disclosures to the Senate.
In part, Mnuchin was able to make these purchases because OneWest was so profitable in foreclosing on Arizona homes. In 2015, OneWest was sold to the bank CIT for $3.4 billion, more than double what Mnuchin and other investors paid for the company in 2009. While Mnuchin was far from the sole beneficiary of that sale, the 119 percent boost in OneWest’s value reflects just how much Mnuchin made on the backs of Arizona families. And it represents an economy out of balance—one set up to benefit Mnuchin and his fellow investors, not families struggling to rebuild from the Great Recession.
While inconsistencies in estimates of Mnuchin’s net worth make it difficult to track his income growth over time, a Center for American Progress Action Fund analysis of forms submitted for Mnuchin’s financial disclosure indicates that he earned between $12,406,320 and $31,056,457 in the 12-month period before December 2016—up to 411 times the inflation-adjusted median income of an Arizona family in 2015.
As Arizona families struggled through the Great Recession, Steve Mnuchin made a fortune off their pain. If confirmed as treasury secretary by the Senate, Mnuchin would become the United States’ most visible authority on economic, financial, and banking policy. His actions in Arizona offer a painful and vivid window into the type of treasury secretary the foreclosure king would be. Arizona’s elected leaders should take a look.
Ryan Erickson is the Associate Director of Economic Campaigns at the Center for American Progress Action Fund. Molly Cain is a Research Associate in the CAP Action War Room.
The authors would like to thank the California Reinvestment Coalition for sharing data used in this column.
Notes: Inflation-adjusted numbers for median home value and median household income are from authors’ calculations using American Community Survey data.
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Associate Director, Economic Campaigns