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The battle over how to craft affordable housing requirements as part of mortgage finance reform took center stage on Thursday as witnesses at a Senate Banking Committee hearing sparred over the issue, including whether dedicated funds should be subject to Congressional appropriations.
November 7 -
Fannie Mae and Freddie Mac have been the primary source of multifamily financing since the financial crisis. But in crafting legislation to wind down the government-sponsored enterprises and restructure the housing finance system, the lawmakers in the House and Senate have largely ignored the GSEs' multifamily businesses.
November 1 -
By deleting three words from the Dodd-Frank Act, regulatory agencies could "refer to" credit ratings, which certainly makes sense, while never "requiring reliance" on them, which doesnt.
November 5 -
Another big law like Dodd-Frank could be harmful to the mortgage market, but an incremental approach to housing finance reform might be the perfect solution.
October 31
Timothy Howard finally has a chance to give his account of events that led to Fannie Mae's rise and fall.
Ousted as chief financial officer in late 2004, Howard was muzzled for years due to litigation. The last major civil lawsuit was tossed out a year ago,
The book is a passionate defense of management's actions in the years before the financial crisis. At the same time, he paints a picture of a mortgage giant that suffered more from smear tactics rather than internal miscues.
In an interview, Howard says his book isn't meant to bash bankers, though he has harsh words for regulators. He wanted to provide an insider's view of the mortgage market in hopes of building a better mortgage market.
As for his legacy? "I'm proud of my record at Fannie Mae," he says. "A "judge looked at 67 million pages of documents and determined there was nothing there [in the civil case]. If people don't see that as vindication, it is their problem."
Howard, a senior financial analyst at Wells Fargo before joining Fannie, would like to return to the financial services industry on a part-time basis, either by consulting or performing pro bono work. "I'd like to find a way to make a positive contribution," he says.
Here is an edited excerpt.
Why write this book?
TIMOTHY HOWARD: The story of the mortgage crisis hadn't been told accurately. Most of the versions out there are political versions. They take a few facts, ignore a whole bunch of other facts and spin a story that is consistent with the objectives of the storyteller. Using my background as a financial economist and a risk manager, I wanted to walk people through the facts, events and developments that actually happened and what I experienced.
While I was in legal exile, it occurred to me that very few other people were in the position that I was in to tell this story properly.
Bankers might feel attacked in the book. What should be their biggest takeaway?
I wouldn't say that I point a consistent finger at [bankers]. I don't accuse anybody of malfeasance or bad faith. I think we went down a path of limited to no regulation of mortgage lending that ended badly for everybody. … It is in everybody's best interest to learn the right lesson from what occurred over the last eight years so we don't repeat it. That's why I wrote the book. I don't have an ax to grind and I'm not trying to pin anything on anybody.
What's your view of today's regulatory environment?
I believe
Is there anything you would have done differently?
I did talk [in the book] about the portfolio risk management issue in 2002. We let that get away from us. I think we waited too long to realize that, given the growth and size of the portfolio and the extensive reliance on derivatives, we needed to tighten up our risk discipline sooner than we did. Once we had the duration gap problem, we reacted but it would have been far better for our shareholders and our image if we had done that sooner.
I didn't say, "Boy I really screwed that up," but if you read [the book] you can pull the lesson that we waited too long.
In your book, you quote Good to Great, a book that lauds Fannie. But the author, Jim Collins, has since flagged management for hubris. What are your thoughts?
I read [Collins' How the Might Fall]. I wrote him a note, offering to talk with him and give him my perspective. … He never responded to me. I guess he had moved onto his next project.
Some of the hubris came from the [1999] announcement of our doubling of earnings growth. I tried to put that into the contemporaneous perspective we had at the time of attempting to send a signal to shareholders that we thought we would be able to benefit from the technological revolution going on at the time, while giving employees the motivation to look for the new approaches, whether it was new products or delivery mechanisms, to take advantage of that.
What's your view of
There is a basic consensus that we ought to get rid of the GSEs and replace them with private market mechanisms. I hope people who read the book will realize that is what people tried to do in the late 1990s and early 2000s and it ended disastrously.
There are elements of the GSE model that we ought to keep and elements of the private-sector model that we ought to avoid. Learning from what happened, let's build a system that works. Whatever we do, it can't be controversial because people will tear it apart and it won't work.
One of the great ironies is that, for 30 years, critics were screaming about Fannie Mae's portfolio business. That did fine throughout the crisis. What blew up was the credit guarantee business, which nobody was worried about. You had this fight that began over the portfolio business that led to the mortgage wars and produced the result we had in 2008. If you are thinking about any form of redoing some version of the GSE model, it cannot have an on-balance sheet portfolio. It is simply too controversial.
