How America’s foreclosure crisis helped make Donald Trump President of the United States of America
Foreclosures helped put Donald Trump in the White House, and his choice for Treasury secretary, Steve Mnuchin, was in a good position to understand how.
Mnuchin, a veteran financier, bought OneWest Bank after the financial crisis and ran it for six years before his consortium sold it for a $1.5 billion profit. In that time, the bank, known as IndyMac before it was seized by federal regulators in 2008, foreclosed on some 36,000 homeowners.
Future Treasury secretary Mnuchin has already mentioned plans to privatize Fannie Mae and Freddie Mac, the government-owned mortgage finance corporations that still backstop the bulk of the US mortgage market.
But figuring out how to responsibly extricate Fannie and Freddie from the market is a Gordian knot of a policy problem that has languished in Washington, with few in either major party eager to discuss the winners and losers of such a move. Most of the discussions have revolved around long-shot efforts by Wall Street investors to seize the formerly insolvent companies’ post-crash profits, rather than letting the government recoup its investment—a strategy that appears to have received a boost given Trump’s election.
Mnuchin’s limited remarks on the topic to date suggest he is eager to wind down the two companies or eliminate them entirely, but housing finance experts across the political spectrum believe it will be difficult, if not impossible, to do without severely disrupting the market for home loans.
Even the American Enterprise Institute’s free-market plan to eliminate Fannie and Freddie depends on enacting a new, $4.5 billion annual tax subsidy to homebuyers—funded, naturally, by cutting spending on affordable housing at HUD and, less believably, by cuts in the home mortgage interest deduction.
All this suggests we shouldn’t expect the Trump administration to offer relief to the more than 7 million American families still under water on their mortgages, even if their votes helped put Trump in office.
Instead, the message about that key asset for the American middle class will likely be muddled again by the use of populist rhetoric to advance the financial sector’s goals.