What The New Treasury Pick Means for OC Real Estate

February 13th, 2017

The policies of the Treasure Secretary can have major implications for Orange County real estate, particularly for mortgages and financing.

Steve Mnuchin

The President’s pick for the post is Steve Mnuchin, former Finance Chairman of the Trump campaign and current principal of Dune Capital Management, a hedge fund. He was also a partner of Goldman Sachs, where he worked for 17 years.

Among his major accomplishments was rescuing failing bank IndyMac at the height of the mortgage crises in 2008 and turning it into the highly profitable OneWest, the largest bank in Southern California. This success, critics say, came at the cost of illegally foreclosing on as many as 80,000 homes, a practice that dubbed the bank, “Foreclosure Machine,” and Mnuchin, “Foreclosure King.”

However, the Wall Street Journal notes that many of the foreclosures were on loans that were hopelessly toxic and approved before the Mnuchin purchase. However, some evidence points to his preference for foreclosures rather than loan modifications.

Fannie and Freddie

Mnuchin has commented that he would restructure Fannie Mae and Freddie Mac, trillion-dollar government-supported enterprises that are major players in the housing market. Their conduct before and during the financial crisis put them under government control in 2008.

He stated that he would restructure the agencies and put them in private hands, which sent their stocks soaring. He has since clarified that his comments “were never that there should be recap and release.” Instead, he favors bipartisan housing reform and eventual exit of government control of the agencies.

In any case, Fannie and Freddie support most prime mortgages in the country, so any changes to how they are structured will affect over 60 million homeowners, including those in Orange County.

Small Lenders

Government control of the two agencies funneled almost all of their profits to the Treasury since 2012. This has amounted to over $60 billion, far more than the agencies received as taxpayer bailout, according to the New York Times. Restructuring the organizations would return most of these profits back to the agencies, which would allow them to rebuild their capital, something that the markets view positively.

Small lenders, such as community banks, rely heavily on Fannie and Freddie to buy the mortgages they create. They see Mnuchin’s comments as positive since lenders have been pushing for reform since 2012, according to Glen S. Corso, executive director of the Community Mortgage Lenders of America.

More money at Fannie and Freddie will mean more resources for small lenders, which translates to better access to mortgages for borrowers during both good times and bad.

Mnuchin has also promised to loosen regulations on small lenders. “Regulation is killing community banks, “ he stated before adding that he doesn’t want to “end up in a world where we have four big banks in the country.”

Dodd-Frank

Worrying many analysts is Trump’s push to repeal the 2010 Dodd-Frank Act, which put in place regulations to curb the worst excesses of the financial crisis.

Mnuchin appears to favor a middle ground. For example, he supports the Volcker Rule, named for ex-Federal Reserve Chairman Paul Volcker, which prohibits banks from making speculative investments. He also wants to keep in place the Consumer Financial Protection Bureau, which protects borrowers from predatory lending and other scams. He does, however, favor funding this agency through government appropriations rather than the Federal Reserve.

If you want to know more about how changes in government regulation affect your ability to buy a home in one of our neighborhoods, please contact us.

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