GREAT FORBES ARTICLE!! **in case you missed it yesterday**
Blame Game Smothers Solution For Fannie Mae And Freddie Mac
Mark Greene Mark Greene, Contributor
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I guess I shouldn’t be surprised that “Replacing Fannie Mae And Freddie Mac Is A Fix That Has Nothing To Do with The Problem,” ignited a blaming war between the left and the right. The housing and mortgage finance collapse darn near crippled our economic life force and attaching fault gets more air time than finding solutions. The right blames Barney Frank and the Clinton Administration and the left blames George W. Bush. Neither side offers up much in the form of solutions as the argument fills with passion and righteous finger pointing, raging to the usual stalemate. Picture two kids standing over a broken flower vase as mom walks in the room, kid fingers point at each other and testify, “he did it.” Same thing.
For the record, the housing and mortgage finance collapse was everybody’s fault. Well-meaning politicians and self-serving politicians, “smartest-guy-in-the-room” financial wizards creating profit tools for stockholders and bonus pools, Fannie Mae and Freddie Mac for being the theater of operations for much of the campaign, ratings agencies struggling with the simple alphabet, mortgage lenders banking seemingly endless fail-safe loans, mortgage originators with no industry barrier to entry maximizing income opportunities at all costs, home sellers riding the inexplicable value appreciation wave, home buyers chasing the heretofore unattainable homeownership dream, Realtors with commission incomes never before seen, appraisers and home inspectors so busy they could cherry pick orders, real estate attorneys with growth exploding practices and title companies profitable beyond rationale expectations. And of course the inevitable graft and fraud fueling the underbelly of these industries as the entire cacophony rose to its inevitable conclusion.
If I left anybody out, it was not intentional, as far as I’m concerned, nobody gets a pass, everybody was in the pool. The question is not about who was to blame, the question is simply, how do we fix the mess we made.
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The debate over who caused the mortgage mess is an exercise in nothing. Bring on the debate over the best fix, blueprint a solution, navigate from where we are to where we need to be, use the history lesson to guide us from peril, but focus forward.
Erasing Fannie Mae and Freddie Mac from the landscape creates a high profile scapegoat, and a titanic void eagerly filled by private sector financial titans with private sector financial interests. This is how our free market system works, it is efficient and the balance of interests will tip away from the quasi-government Fannie Mae and Freddie Mac mission statements to what is in the best interests of the stockholders. The federal government may be tossing the stewardship of the housing and mortgage finance markets like a hot potato, less interested in a best solution than it is in political chess.
The mortgage industry needs vision and leadership; Fannie Mae and Freddie Mac seem to be rudderless ships managed by reaction and an inability to navigate out of the morass. Mortgage lenders live with the constant threat of having to buyback loans that may meet underwriting guidelines, but may be missing redundant supporting documentation. There is no clear instruction book that can be relied on, it changes and is interpreted as new circumstances arise. Creative documentation has become the norm as underwriters struggle to bullet-proof loan files with beyond-a-reasonable-doubt credentials.
A case was recently brought against First Third Bank alleging that the Fair Housing Act was violated when a married couple was asked to provide a letter from their doctor as evidence that their disability income would be continuing. This request was outside of the FHA underwriting guidelines and may have in fact been discriminatory, but it is more likely that the lender was defensively documenting the loan file to avoid the dreaded buyback. In their quest to over-document the loan file, they potentially strayed into discriminatory lending practices and may suffer the unintended consequences of just trying to get it right. We need better direction than this, the kind of direction that professional management brings.
Harmonic, straightforward, common sense documentation guidelines would eliminate much of the fear managing that is everyday life in mortgage loan processing shops across the country. Defensive guideline and documentation fortification has become the primary mortgage loan creation issue in the mortgage industry. The buyback threat is a part of every processing shop decision from start to finish, as a zero tolerance appetite has gripped mortgage lenders for fear of what Fannie and Freddie will promulgate next. We need highly skilled management, forward marching with unwavering fortitude, absent reactionary sidetracking to bring Fannie and Freddie to be the foundation at the epicenter of the mortgage universe.
The best and brightest private sector finance players can bring the skills of professional management to the table, but they will need the broad balance focus that will right the housing and mortgage finance ship and bring order to chaos. The wheel that is Fannie Mae and Freddie Mac already exists, reinventing for the sake of the storming villagers with their torches and pitchforks is political posturing and is absent any economic or financial structural integrity. The bones and the gears are in place, we need the wherewithal that only major league management can bring. Look at what Brian Moynihan has done with the mess that he inherited at Bank of America, stymied by the catastrophic acquisition of Countrywide and tasked with executing a fix in this room temperature economic climate, he has turned BAC in the direction of profitability. This is the kind of personnel upgrade we need at Fannie and Freddie. In his book, Good to Great, Jim Collins talks about getting the right people on the bus and then making sure those people are in the right seats, simple math, sound direction for the future of Fannie Mae and Freddie Mac.
Enough debate, let the talent search begin.
