Return to Transcripts main page
Steve Mnuchin Congressional Hearings. Aired 2-2:30p ET
Aired January 19, 2017 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[14:00:00] UNIDENTIFIED MALE: And you're going to have opposition from the speaker of the House. Thank you.
STEVE MNUCHIN, TREASURY SECRETARY NOMINEE: I'm not suggesting that. I was just saying I wasn't going into the specifics of every single tax item. Thank you.
SEN. ORRIN HATCH (R), CHAIRMAN, SENATE FINANCE COMMITTEE: OK, Senator Crapo.
SEN. MIKE CRAPO (R), FINANCE COMMITTEE: Thank you, Senator Hatch.
And, Mr. Mnuchin, I want to try to cover three quick, maybe not so quick, questions. The first one is to return back to the discussion you were having with Senator Warner about Fannie Mae and Freddie Mac and GSE reform, housing policy reform. You're - I'm sure you're aware that Senator Warner and I and a number of other senators on the Banking Committee have worked for some time on legislation to try to deal with this circumstance. We currently have a situation in which Fannie Mae and Freddie Mac are in receivership. The federal government basically is running them. And the concern that I believe Senator Warner was referencing was a concern that the administration - not because we are afraid of anything, just but because we're asking, we're trying to find out - that the administration my either believe that it's OK to keep them in receivership and just continue to one as is with the status quo, or perhaps to simply recapitalize them an put them back out into the market without any housing reforms. And I just wanted to ask you if you would - I realize you can't comment on a specific plan yet, but if you would comment on the fact as to whether you believe that we need to have reform in our housing finance - or our housing finance policies that would go further than simply recapitalizing Fannie and Freddie, or keeping them in the receivership.
MNUCHIN: OK. Well, again, thank you for that. And I would comment. Unlike the Medicare fund, where I acknowledge I'm not an expert, I think on Fannie Mae and Freddie Mac I am an expert. I've been around these for 30 years. I understand these very well. And that's why it would be one of my priorities to work with you. And as I've said, what I am focused on is, we need housing reform and a solution. So I start with the standpoint of, the status quo is not acceptable of just leaving them there.
CRAPO: Appreciate that.
MNUCHIN: I think, as you know, and we've discussed, there are two extremes on this and it's something that I look forward to sitting down and talking to you with. But I believe we need housing reform and we need to make sure that whatever the outcome is, on the two extremes, that, one, we don't put the taxpayers at risk, and, two, we don't eliminate capital for the housing markets. So I'm very concerned that middle income people and moderate income people who need mortgage loans have access to that capital.
CRAPO: Well, I appreciate - in fact, I agree with you on both of those objectives and I think that's exactly what we need to work together to identify (INAUDIBLE).
MNUCHIN: Good. Well, I'm optimistic we can work together and hopefully figure out a bipartisan solution. Thank you.
CRAPO: Thank you.
My second question is, you've already answered it but I just want to raise it again because it's so important, and that is, we've seen the unfortunate circumstance, in my opinion, in the last few years of the IRS actually targeting individuals because of what they believe and how they advocate in our society. And you've already talked about this, but I would just encourage you to make a high prior that not only the IRS, but all of the federal functions under your jurisdiction as the secretary of the Treasury, which I'm sure you will be confirmed to be, are stopped from that kind of targeting of American citizens who are conducting perfectly legal business and engaging in perfectly free and legal speech.
MNUCHIN: You have my 100 percent assurance that I will do that. I think there's no place in not only the Treasury but in other agencies for us to be having people act that way.
CRAPO: All right. Thank you.
Then my last question in this round would be, back to the tax issue. One of the big issues that I think we must grapple with, and I would just like your ideas on it, is that, as I'm sure you know, a huge percentage, in fact a significant majority of the business entities of the United States pay tax through the individual income side of the code rather than the corporate side of the code. And as we reform, as we should, our corporate code, an engage in individual tax code reforms, I'm concerned that we don't end up with a significant bifurcation between different business entities in the United States as to the tax burden and the tax rates that they pay. Could you comment on that?
[14:04:37] MNUCHIN: Sure. And I too think that that's an important issue. And, again, let me just - you know, for - for large companies that are in pass through form today, the reason why large companies are in pass through forms is because they look at the personal income tax rate and they compare it to the corporate rate and the dividend rate. So I think for many large companies that are structured as pass through, they will opt to take the business tax and we will figure out a simple, non-bureaucratic, you check the box, you get the business tax, you leave the money in the company, you grow your company, you get the lower business tax. If you distribute it out, you pay dividends. And I think that that's something that's critical. And as I've said, we'll make sure that we work with Congress to make sure that we close loopholes so rich people don't use this as a way to get lower business tax. And, on the other end, we'll make sure that small businesses are protected as well, legitimate small businesses.
CRAPO: So the small businesses don't pay an incrementally higher tax just because they choose not the engage in the corporate form?
MNUCHIN: Correct. And that's something that we look forward to working with you on, on the details and how we can make sure that's preserved.
CRAPO: All right, thank you very much.
Thank you, Mr. Chairman.
HATCH: Thank you, senator.
SEN. BILL NELSON (D), FLORIDA: Thank you, Mr. Chairman.
Mr. Mnuchin, you no doubt are aware that one of the things as treasury secretary you will have to face is the multi-employer pension funds that are in dire straits. These are ones that have become unstable and they're ones - pension plans for people like truck drivers, carpenters and miners. And the treasury secretary has the authority to temporarily or permanently reduce the pension benefits if the plan is projected to run out of money.
Therein, there are two bad outcomes. One, it's running out of money and you are going to be faced with the problem of what to do about it. These are folks that are living on the edge. And a reduction of the pension is going to mean something that they have to go without. What do you think about this and how would you approach this heart- wrenching issue?
MNUCHIN: Well, I appreciate your concern, and we had the opportunity to talk a little bit about this when we met. And I believe your office followed up and sent me some information on this. So it's something that I look forward to working with you on.
And let me first say, I think that people who have worked very long periods of time and have built up a pension deserve to get their pension. That is very important. On the other hand, we have to be careful that on the other extreme we don't have a bailout of the entire pension industry and bankrupt the guarantee fund.
But, I commit to work with your office. I understand these issues. I understand the sensitivities of these issues. And I share your concerns that cutting truck drivers' pensions and other peoples' is a very significant outcome and we should go to great lengths to figure out if there's other solutions before we do that.
NELSON: Since folks like you and me have been blessed, we haven't often had to walk in the shoes of folks like that, that are living on the edge. MNUCHIN: I completely understand.
NELSON: And I ask that in your position, with this awesome authority as treasury secretary, that you put yourself in those shoes.
Another financial disaster is what's happening in Puerto Rico, not only because of what they are at fault about, but also in the unequal way that they have been treated by the law, quirks in the law, that I do not understand how they ever got that way. They're not treated the same on bankruptcy laws. They're not treated the same on Medicare and Medicaid laws. And they have a particularly tragic situation where they were given a block grant of Medicaid money. That's running out this year. While at the same time, one-third of the islands' residence are infected with Zika. And we know that 15 percent of those infected with Zika, if they are pregnant, there's a 15 percent chance that they're going to have a deformed child. I would like very much for you to keep that in mind because we've got to come up with a plan.
[14:10:14] Now, I know a lot of responsibility is on us in the Congress. The chairman led an effort, and we tried to get some things passed in December, but the big things like Medicaid are coming up in the future.
MNUCHIN: Well, senator, first of all, thank you for going through that. And when I did have the opportunity to meet with Secretary Lew and talk about certain issues that he wanted to advise me on and bring to my attention that he thought I'd have to deal with in the near future, Puerto Rico was high on that list. So I must say I wasn't an expert on Puerto Rico before the last 30 days. I've started studying this issue. I share your concerns.
I'm glad that the commission was established. I think that - I understand that the Treasury has been staffing the commission. I have someone who I've already asked internality who's going to be working with me to start working on and get debriefed by the Treasury staff on this, and this is going to be something that we need to figure out a bipartisan solution. I'm hoping that it can be done in the context of the commission, but I look forward to working with you on.
NELSON: Thank you, Mr. Chairman.
HATCH: Thank you. OK, Senator Menendez.
SEN. BOB MENENDEZ (D), NEW JERSEY: Thank you, Mr. Chairman.
Mr. Mnuchin, I've listened to your responses to my colleagues defending One West's more than 50 foreclosures on your watch and I understand you bought a bad book of loans. And I don't think we're saying that you had to save every single homeowner. But by taking the FDIC's backstop, you had an obligation to at least try. So do you believe that you made every effort to prevent foreclosures and keep families in their homes?
MNUCHIN: I do. And I actually brought with me which, if you want to make part of the record, the FDIC asked the inspector general, the OIAG, to come in and look at the loan modification program - MENENDEZ: So you believe you did?
MNUCHIN: And they independently reviewed that and that was verified by the OIG (INAUDIBLE) FDIC.
MENENDEZ: Well, I don't know that their determination is that you made every effort. Let me just say, what about -
HATCH: Well, excuse me. But without objection, we'll make that part of the record.
MNUCHIN: Thank you.
MENENDEZ: What about one of your vice presidents actually admitting to robo-signing 750 foreclosures documents a week without even reading or reviewing them? How can that be considered making every effort to prevent foreclosures? Can you honestly say you're bank made every effort to keep families and seniors in their homes when they were robo-signing one foreclosure document every three minutes?
MNUCHIN: So, senator, yes I can absolutely say that we made every effort. And again, our loan modification programs were audited by the treasury, the FDIC, the OCC. You can imagine as being a private equity person who bought a bank, we lived a glass house and we were constantly reviewed by the regulators.
Now, the comment that you're making, there was an industry issue, OK, which had nothing to do with loan modifications, which had to do around the processing of foreclosures. That was a procedure that was started at IndyMac. It was continued under the FDIC ownership. And in the beginning of our ownership, OK, we, unfortunately, didn't change certain procedures, as I've said. The industry, it was - it was solved, OK. (INAUDIBLE) -
MENENDEZ: Well, you - you keep - I'm not worried about the industry, I'm worried about what your direction at your bank. You keep referring to entities. The office of thrift supervision hit you with a consent order because you were actually putting homeowners on a fast track to foreclosure. And that was part of that 750 foreclosures a month. You also had an independent government audit of One West foreclosures in 2009 and 2010 that alone identified more than 10,000 homeowners who were owed $8.5 million in damages. And among those homeowners were 54 incidents over the course of just two years where the bank violated the rights of active duty military servicemen and women, those defending our country across the globe under the Service Members Civil Relief Act. So if you did all of that, how is it that you feel that you can honestly say here on - in sworn testimony that your company did everything?
MNUCHIN: OK. So first of all, senator, and I appreciate the issue, and as I said before, we highly regret the extent that we made even one error, whether - especially to the servicemen. And, yes, we had all those loans reviewed. We paid $8 million. Many, many firms paid billions and billions of dollars but we regret any issue there.
[14:15:09] What you were referring to with the OTS and the independent foreclosure review, it was one in the same. So as referenced in my testimony, we were one of 14 banks that signed a consent orders. Basically the 14 largest servicers signed consent orders. At the time we were under the OTS. It was later taken over by the OCC, who took over the consent order. And we were the only bank that actually completed that independent foreclosure review and we are proud of that.
MENENDEZ: And the fact that it was completed at the end of the day ultimately showed that your company took people out of their homes and created consequences for them they should not have had. So I'm not sure which one is to be proud of.
Do you know a woman named Sylvia Oliver (ph)?
MNUCHIN: I do not.
MENENDEZ: I didn't think so. She is from Scotch Plains, New Jersey. She is the sister of the immediate past speaker of the New Jersey General Assembly. She received a loan from IndyMac in 2008. And after her employer cut her hours, she ran into difficultly paying for her mortgage. She wanted to be a good borrower. She tried eight times for loan modifications, which I believe she would have qualified. Every time your bank denied each and every one. She's been fighting to save her home for seven years. She nearly lost her home yesterday. Thanks to her tenacity, she has a 30 day reprieve. But that's no guarantee she won't lose her home next week.
So I look at her and, Mr. Chairman, I'd like to have the testimony of several individuals who face these realities be included in the record at this time.
HATCH: Well, without objection, if their - if they pertain to the record, we'll certainly -
MENENDEZ: Oh, they certainly pertain to the record. They pertain to having been foreclosed on and ultimately having - try to seek loan modifications unsuccessfully, even though they should have qualified for them. And I think they're more than eligible for the record.
So let me just say, in closing, I see this as an example of privatizing profits but socializing losses. In the darkest days of the financial crisis, it seems to me that you and your friends were looking for stores to raid, and you found a gem in IndyMac. And with the government subsidizing the risk, you engineered a highly lucrative equation that made billions off the backs of homeowners, seniors, minorities, military men and women. And so I have a problem understanding, how does that create confidence in the secretary of the treasury nominee when you have to be looking out for every American. And it didn't seem that when you had a chance to do that, and even the incentive, I would argue by the backstop, that the FDIC gave you, and over $400 million that your company took from (INAUDIBLE), which I know you were disparaging before, that that was your drive. So I need to be convinced that's going to be your drive now that you're the nominee for the treasury secretary that's supposed to represent all Americans. MNUCHIN: Well, senator, I hope I have the opportunity to convince you
going forward. And I apologize because I didn't recognize the name. But now that you've mentioned to me, it's been postponed. And I don't know any of the specifics. But as a courtesy, CIT did inform me that your office had requested an extension and they did honor that and given an extension to revisit that. And I am not involved in CIT anymore, but I would encourage you to make sure that you have - again, if there's complaints, there's a department within the bank that responds to this. As I said earlier, any complaints that came through any government or regulatory agencies were responded to very carefully and reviewed by the OCC. And, again, I would just apologize to the extent there were any errors whatsoever. That is something that I'm very sorry for.
But having said that, we took over a mortgage servicing business that was not part of what we were trying to build. It was a mess when we got there. We fixed it. We cleaned it up. And to the extent that we made errors or issues, we compensated people for that as part of the agreement that we entered into, the regulators, which we think is the right thing to do.
HATCH: OK, Senator Carper.
SEN. TOM CARPER (D), DELAWARE: Thanks, Mr. Chairman.
Mr. Mnuchin -
BLITZER: All right, we're going to take a quick break from the hearing, resume our special coverage right after this, the confirmation hearings of Steve Mnuchin, who's been nominated to become the secretary of the treasury.
[14:23:58] BLITZER: Confirmation hearings now approaching four and a half hours for Steve Mnuchin, the treasury secretary nominee, for the Senate Finance Committee. He's answering questions from Senator Mike Carper right now. Let's listen in.
MNUCHIN: Long time ago that we should reopen this agreement -
CARPER: Actually we did and we did it in the context of TPP, as you know.
MNUCHIN: I understand that.
CARPER: And my hope is that when you all get settled in, that you'll go back and - when you're thinking about renegotiating NATFA, make sure we understand what - what's already been done.
MNUCHIN: I would hope that the starting point is the work that you've done and I'm optimistic that we can renegotiate that deal that's both advantageous to us and advantageous to Mexico, that's it's a win-win for both countries.
CARPER: Good. Well, I was thinking, when you're - when you're mentoring or giving advice to the president-elect, another word of advice from my parents to my sister and me was - and this probably works on the tariff, the imposition of tariffs is, what goes around comes around. I mean you might want to keep that in mind.
MNUCHIN: Just to clarify the record, I'm not mentoring him, he's mentoring me.
[14:25:03] CARPER: I'm not so sure.
MNUCHIN: But I do give him advice. I wouldn't clarify that as mentoring.
HATCH: Senator Cardin.
SEN. BEN CARDIN (D), MARYLAND: Thank you, Mr. Chairman.
I will now get to the tax issues for a moment. We talked - had a chance to talk about that in my - in the office. And I think we all would acknowledge that our income tax rates, personal and corporation, on global competition puts the United States at a disadvantage. It's something we need to deal with. We also recognize that from a business tax point of view it's not just the corporate rate, it's also the individual rate, since 90 percent plus businesses pay the individual rate.
I want to talk about two standards that I hope will judge the review of tax reform so that we can have a simplified tax structure, one that's fair to the American people. One, I would hope that you would agree that we do not want tax reform to increase the size of the federal deficit.
MNUCHIN: I'm taking notes. Do you want me to answer them one at a time or -
CARDIN: OK. Well, -- well, the second is that tax reform should be at least as progressive as our current tax code, that is middle income families should not be asked to pay more in regards to our tax code.
MNUCHIN: So - and, again, in both those issues, and I share your concerns on the first one. Again, we do believe in dynamic scoring and with the appropriate growth I think we want to make sure that tax reform doesn't increase the size of the deficit. And in regards to the second, as I've said in my discussions with the president-elect, he is very interested in us providing a middle income tax cut. That is his priority.
CARDIN: And I would just urge on the first part that recognize that we have to be disciplined as we deal with the federal budget. And I would hope we would have consistent rules in regards to both spending and tax cuts as to the dynamic nature of those types of activities. It's a lot easier for us to use the current rules because they're objective and we have professionals who giving us the ground rules. When we start using subjectivity, it could be abused and at the end of the day we could have much larger deficits. But your point is, you do not want to add to the deficit of the country.
MNUCHIN: I - that is correct.
CARDIN: New (ph) tax reform. And, secondly, you want to make sure that middle income families are not disadvantaged by the tax code. So here's the challenge. We also believe we should be competitive globally because you want to grow our economy in regards to exports. It's difficult to see how you can get that done within the context of using just income tax revenues because the United States, among the industrial nations of the world, has a relatively low part of its economy tied up in government, and yet we have marginal tax rates that are among the highest in the industrial world. The reason, of course, is that we don't use the consumption tax. And every other industrial nation uses a consumption tax.
So without bringing in other sources of revenue, we're going to have a very difficult time to get those competitive tax rates. So I would just urge you, as I did in my office, to take a look at a progressive consumption tax. It is border adjusted. It does reward savings and does make our tax code not only competitive but gives us a competitive advantage over the industrial nations of the world.
MNUCHIN: Well, again, I appreciated meeting with you and talking about these issues and we'll follow-up. And, you know, again, under the appropriate growth numbers, as I've said with dynamic scoring, you know, we're not looking to grow the deficit. And, obviously, one of the concerns is, is the size of the debt and how it's gone up. In regards to your other issue, you know, one of the issues, and this impacts trade policy, is we don't have a vat tax system, we have an income tax system, and other countries do, and that's - that's one of the things that (INAUDIBLE) looks at.
[14:29:23] CARDIN: And, of course, the rest of the world uses consumption taxes. That is border adjusted. We use income taxes. Income taxes are not border adjusted. That makes it difficult for us to grow exports. So it also, of course, does not reward savings, which is another area, during the best of times, America's savings ratios were not competitive with other countries. We use more incentives for savings, which is the other area that we talked about in my office that Senator Portman and I and others have worked on, and that is to increase the opportunities for Americans to save, particularly in retirement savings. That, I don't believe, would be a partisan issue. And as we are working for major tax reform to try to make our tax code fairer and more competitive, I would urge you to work with us on retirement savings and other savings initiatives that we could make progress, I think, in a relatively short period