Senate Democrats are gearing up to fight President Donald Trump’s nomination of an ally of Treasury Secretary Steven Mnuchin for a key bank regulatory position because of his links to controversial foreclosure practices during the financial crisis.
Joseph Otting, former CEO of Mnuchin’s onetime bank, OneWest, was tapped Tuesday as comptroller of the currency, overseeing the agency that supervises the daily operations of national banks.
That has prompted Democrats — some of whom dubbed Mnuchin "the foreclosure king" during his hearings for Treasury secretary — to now direct their anger about OneWest toward his former lieutenant.
“Mr. Otting has no experience as a bank supervisor, but he has helped lead a bank that illegally foreclosed on working families and paid a multimillion dollar fine for defrauding the government,” Sen. Elizabeth Warren said in a statement to POLITICO.
Otting, who worked at U.S. Bancorp, as well as Union Bank of California and Bank of America, is in a strong position to implement the regulatory rollback that Trump has promised will spur lending. Despite Democratic opposition, he will need just 51 votes to clear the Senate.
Still, the vote margin could be tight; Mnuchin himself garnered only a single Democratic supporter. And though they won’t be able to block Otting’s confirmation on their own, Senate Democrats could drag out his confirmation process as they have with other Trump nominees, slowing the president’s efforts to staff the government.
Outside groups have also tried to make it painful for Republicans to support Trump’s picks. Mnuchin’s opponents targeted Republicans up for reelection in 2018, including Sen. Dean Heller, a Banking Committee member whose state of Nevada was hit hard by the housing downturn.
Critics of OneWest have blasted Mnuchin and his colleagues for making millions off homeowners dragged under by the crisis; progressive watchdog Public Citizen has already nicknamed Otting "the foreclosure prince."
But supporters say that many of the loans made by IndyMac — a failing bank bought by Mnuchin and fellow investors, who renamed it OneWest — were doomed to fail.
"I was committed to loan modifications intended to stop foreclosures," Mnuchin said during his nomination hearing. "Unfortunately, not all of the homes could be saved."
With Otting’s nomination, the OneWest fight is back in the spotlight.
“Just like Mr. Mnuchin, Mr. Otting made a fortune profiting off of a foreclosure crisis that devastated millions of Americans, including countless Nevadans,” Sen. Catherine Cortez Masto, who hails from Otting’s home state, said in a statement.
She added, “I have little confidence that Otting will be well-positioned to police the types of misconduct his firm once engaged in.”
The Senate Banking Committee’s top Democrat, Sherrod Brown of Ohio, had a similarly scathing sentiment.
“If Mr. Otting didn’t deal fairly with the customers at his own bank, it’s difficult to see why he’s the best choice to look out for the interests of customers at more than 1,400 banks and thrifts across the country," he said.
Last month, a reverse mortgage subsidiary of OneWest, now owned by CIT Group, reached an $89 million settlement with the Justice Department for allegedly defrauding the government by seeking insurance payments from the Federal Housing Administration that it did not qualify for. The allegations cover the period between 2011 and 2016; Otting was CEO of OneWest from 2010 to 2015.
Yet Otting’s background in regional banking is likely to be welcomed by the industry, which has complained that post-crisis regulations are too onerous and have slowed economic growth.
"This is a positive pick for [financial companies] as his regional bank experience should help him understand how to reduce [the] regulatory burden without risking safety and soundness," Cowen analyst Jaret Seiberg said in a note last month, in anticipation of Trump’s pick.
Several senators on the Banking Committee, including Chairman Mike Crapo, declined to comment. And a spokesman for Sen. Jon Tester said the Montana Democrat is reserving judgment for now.
“Senator Tester will give Mr. Otting a fair chance during his confirmation hearing, but he does have some serious concerns over Mr. Otting’s time at OneWest that he will need to answer questions about,” spokesman Dave Kuntz said.
Sen. Chris Van Hollen (D-Md.) told Mnuchin in a letter that Otting’s work at OneWest with Mnuchin "raises deep concerns about his independence and commitment to protecting working families."
Van Hollen also used the letter to keep pressing Mnuchin to respond to ethics concerns around acting Comptroller of the Currency Keith Noreika. In an unusual move, the administration last month asked the independent agency to hire the bank attorney so he could be named as acting comptroller, rather than appointing an existing career official.
Seven Senate Democrats led by Van Hollen asked Mnuchin why Trump didn’t simply nominate the banking attorney to run the agency. They also wanted to know what ethics agreements Noreika is bound by, what recusals he will be required to follow, and what authorities he will have in the job.
Treasury answered in writing on May 17, but Van Hollen said Tuesday that the letter was not responsive enough.