By Nick Timiraos

Investments tied to the foreclosure crisis are shaping up to figure prominently in the Senate confirmation hearing Thursday for Steven Mnuchin, Donald Trump's intended nominee for Treasury secretary.

Mr. Mnuchin, the former Goldman Sachs executive, has touted his experience as a regional banker during a stint turning around the failed thrift IndyMac Bank, later rebranded as OneWest Bank. The deal to purchase the lender from the government, rehabilitate it and then sell it to CIT Group Inc. scored big returns for Mr. Mnuchin and his investors.

Democrats and others have tried to characterize Mr. Mnuchin as having profited from the crisis by foreclosing on thousands of distressed homeowners after cutting a loss-sharing agreement with the Federal Deposit Insurance Corp.

Mr. Mnuchin's prepared testimony for Thursday's hearing focuses heavily on defending against that campaign. "I have been maligned as taking advantage of others' hardships in order to earn a buck. Nothing could be further from the truth," he says.

Republican control of the Senate allows the GOP to confirm Mr. Mnuchin with no Democratic votes and one or two Republican defections. But even if Democrats can't torpedo Mr. Mnuchin, they hope to further paint Mr. Trump's cabinet as a group of plutocrats to undercut his appeal with working-class Americans who fueled his long-shot presidential bid.

More broadly, Thursday's hearing before the Senate Finance Committee will give Mr. Mnuchin his first extended opportunity to clarify his views ona range of subjects that fall under Treasury's purview. The responsibilities of the Treasury secretary, who is fifth in the presidential line of succession, include everything from tax collection and fiscal policy to bank regulation, debt management and the implementation of international sanctions.

Mr. Mnuchin earned Mr. Trump's trust during the 2016 campaign after signing up as his national finance chairman during a period when many Republicans still doubted the New York developer's chances to win the White House.

Treasury secretaries in the modern era have fallen roughly into two camps: Both the outgoing Treasury Secretary Jacob Lew and his predecessor, Timothy Geithner, took the job after long careers in public service but with little background in the private sector. Others have been captains of finance or industry with broad business contacts. Unlike other members of the latter group, Mr. Mnuchin hasn't cultivated relationshipswith foreign finance ministers or seasoned Washington policy hands.

Mr. Mnuchin also hasn't weighed in on the partisan policy battles of the past decade, and his prepared remarks made little reference to his policy views. Lawmakers and markets will seek greater clarity from Mr. Mnuchin on Thursday over a series of issues where Mr. Trump hasn't always lined up with congressional Republicans, including infrastructure spending, tariffs and tax policy.

Mr. Mnuchin could be asked to explain what he meant when he said in a November interview that high-income households wouldn't receive an "absolute tax cut" from the Trump administration, a promise at odds with tax proposals from Mr. Trump and Republicans in Congress.

He will likely face questions over what the administration will do with key provisions of the Dodd-Frank financial-overhaul law, including the Consumer Financial Protection Bureau, and new regulations issued last year by the Treasury to prevent U.S. companies from moving their corporate headquarters abroad to reduce their tax bills.

One pressing need for the new Treasury secretary will be to raise the government's borrowing limit, which has been suspended until mid-March. After that, emergency measures to prevent the country from defaulting could probably last through the summer.

The Treasury will also have to prepare the semiannual foreign-exchange report due in April, in which Mr. Trump has suggested he may take issue with what he has said is China's effort to gain an unfair trade advantage through currency intervention.

Mr. Mnuchin might also face questions over comments he made in November supporting the privatization of mortgage-finance companies Fannie Mae and Freddie Mac, which remain effectively controlled by the Treasury as a result of their 2008 bailouts.

Financial disclosures made public last week show Mr. Mnuchin stood to benefit as an investor from those comments, which were made hours after his announcement as Treasury secretary-designate and which drove up the prices of the firms' shares. Mr. Mnuchin has pledged to divest from some but not all investments he controls.

In testimony prepared for Thursday's hearing, Mr. Mnuchin deflected Democrats' criticisms about OneWest's role foreclosing on homeowners by pointing out how most of the bank's failed loans were made long before his ownership group stepped in. He also outlined a series of steps where he pushed regulators and mortgage trustees for greater flexibility to resolve troubled loans.

Mr. Mnuchin took control of IndyMac in 2009 from the FDIC, which cleansed the bank of some of its bad loans through asset sales and write-downs. The agency agreed to share in losses with the ownership group that Mr. Mnuchin led, and the new owners pledged to continue the FDIC's loan-modification program, for which IndyMac had served as a testing ground. As a large servicer of loans held by other investors, OneWest was often bound by underlying servicing agreements that sometimes prohibited certain loan modifications.

In 2011, the bank was one of 16 institutions hit with consent orders from federal regulators after they uncovered routine deficiencies in banks' foreclosure-processing and mortgage-recording practices.

Write to Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

January 19, 2017 05:44 ET (10:44 GMT)

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