Sandra explains how the FHFA’s obligations are really two sides of the same coin, offers advice on finding the right mentor, and shares her thoughts on what she believes is the biggest issue facing housing finance today: rental housing affordability.
For our readers who may not have an in-depth knowledge of the FHFA, how would you describe the Agency’s role in housing finance, and how the Division of Housing Mission and Goals fits into that?FHFA is the regulator for the Housing Government Sponsored Entities, which include Freddie Mac, Fannie Mae, and the 11 Federal Home Loan Banks.We are also conservator for Fannie Mae and Freddie Mac, and these two institutions (which we call the Enterprises) have been in conservatorship for just over 11 years.
FHFA is the primary federal regulator for much of the secondary market for mortgage loans. Explaining how the secondary market works would require more than a short answer, but basically, when a person takes out a home loan, the loan is underwritten and funded by a lender (such as a bank).Because the lender has used its own funds to make the loan, many lenders sell their loans to the secondary market to replenish the money available to make more home loans. These loans (if they meet certain criteria) can be sold to Fannie Mae and Freddie Mac, who then package the loans into mortgage-backed securities for sale to investors.
Our key responsibility as the regulator of Fannie Mae and Freddie Mac is to ensure that they are operating in a safe and sound manner AND they are providing a liquid and efficient national housing finance market. Our job is to balance these two obligations. This job is not to be taken lightly as the Enterprises guarantee more than $4.4 trillion dollars in mortgage-backed securities, and purchase loans each and every day. It is also through Fannie and Freddie that we are able to implement many initiatives designed to restore and maintain the health of the housing finance system.
At FHFA, one of our goals is to help establish a solid foundation for both affordable and sustainable homeownership and rental opportunities.Our efforts build upon mortgage lending reforms that now provide borrowers with significant protections from the abusive practices that contributed to the financial crisis.
Within FHFA, the Division of Housing Mission and Goals (DHMG) is responsible for developing and analyzing housing policy. We administer the Agency’s housing and regulatory policy, the affordable mission and goals of the Enterprises, and the housing finance, community and economic development mission of the Federal Home Loan Banks. We also oversee and coordinate FHFA activities that involve capital policy, as well as data analyses and analysis affecting housing finance and financial markets, in support of FHFA’s mission and the Director’s responsibilities as a member of the Federal Housing Finance Oversight Board, the Financial Stability Oversight Board, and the Financial Stability Oversight Council.
Being a Deputy Director at an agency in the Federal Government is obviously a role that requires significant experience. What lessons did you learn from your previous roles that helped prepare you for this experience?I started my career at Northwestern Mutual Life Insurance Company in Milwaukee, then moved to Goldman Sachs in New York, before I switched tracks and moved to Washington, D.C. in 1990 where I would serve on the front lines of two financial crises.
I first served as the Director of Securitization at the Resolution Trust Corporation (RTC), which was established to deal with the disposition of mortgage loan assets from the savings and loan crisis.
Following the RTC, I worked at the Federal Deposit Insurance Corporation (FDIC), most recently as Director of Risk Management Supervision, which included leading the FDIC’s supervisory operations during the most recent financial crisis.
I came to the Federal Housing Finance Agency (FHFA) to address what I believed was the single remaining critical issue impacting our economy. Now, instead of regulating banks, my regulatory duties are focused on the secondary mortgage market. The work is different but there is still the same need to make sure that our regulated entities are not only operating in a safe and sound manner – coupled with our responsibility to ensure that they are providing broad liquidity so that homeowners and potential homeowners are able to get mortgages or refinance existing mortgages.
One important theme has carried over from FDIC to FHFA – Safety and Soundness and Consumer Protection/Access to Credit are not mutually exclusive. At FHFA, our statutory mandates include ensuring: (1) safety and soundness, (2) resiliency, (3) liquidity, (4) stability, and (5) broad access in the housing finance markets. Some see conflicting priorities within these goals, but as we often said in my days at FDIC, when talking about safety and soundness and consumer protection, these principles are two sides of the same coin. I can’t say this enough – in the mortgage industry when we talk about access to credit, some tend to think that safety and soundness gets thrown out the window. I believe that you need to have both; safety and soundness and access to credit are not mutually exclusive.
Who were some of the key people that helped you develop into the leader you are today?Mentors have been invaluable throughout my career. I’ve been able to find people who agreed to share their skills, knowledge, expertise and professional contacts with me. I often tell people that your mentors don’t have to look like you, sound like you, or even think like you. Just find someone whose work (and work ethic) you admire who is willing to help you.
My mentors at Goldman Sachs, Neil Levin and Howard Altarescu, and John Bovenzi at the FDIC, really helped me a lot. They were instrumental in my career and gave me opportunities to work on important projects and learn invaluable lessons that I have been able to use. They not only taught me to focus on the technical skillset necessary to complete an assignment, they also taught me a lot about soft skills. They honed in not only on what I did, but how I did it.
What are some accomplishments or events in your career that stand out as being particularly memorable?I have so many great memories throughout my career. Northwestern Mutual Life Insurance Company was a great place to work. I worked on a team in the IT Department and quickly learned the benefits associated with collaboration, cooperation, and prompt/accurate communication. This idea of teamwork was also emphasized at Goldman Sachs where everyone worked together to accomplish the goals of the organization and we worked many long days, nights, and weekends. (I actually worked overnight!)
At the RTC, I was fortunate to play a significant role in the creation and implementation of a program that securitized both performing and non-performing loans from failed savings and loan institutions.
At FDIC, I was most proud of my staff.I was responsible for a nationwide workforce of approximately 3,000 examiners who worked day and night in the midst of the worst financial crisis since the Great Depression to give the nation comfort in the safety and soundness of the banking system. I take great pride in having been associated with people who contributed so significantly to public confidence.
I am also very proud of my FHFA staff. They are extremely competent and dedicated to accomplishing the mission of the agency and have done so under extraordinary circumstances. There has never been an institution in conservatorship for over 11 years, and the associated responsibilities require significant thought leadership. DHMG staff work on a number of very important items that have a significant impact on homeowners, borrowers, and financial companies across the country.
What do you believe is the biggest issue facing our nation’s housing finance system right now?Housing affordability, especially in rental housing, is one of the most important issues we are facing right now. One specific area of rental housing facing an affordability crisis is what many call “workforce housing.” These households usually do not qualify for rental assistance but do not earn enough to comfortably afford market rents and are often referred to as the “missing middle.”
While much of our work at FHFA focuses on access to credit for homeowners, access to affordable rental housing is also a high priority for us. Although the multifamily market has grown by leaps and bounds in recent years, the growth has been concentrated at the top of the market, providing luxury rental units in high-cost cities. For many working people in these cities, it has become unaffordable to live in the cities where they work. And adding new supply at the upper end has not produced an adequate supply of rentals at the middle or the lower end.
What does the word “homeownership” mean to you?On a personal level, homeownership means a place that allows you to establish or deepen roots in a community. It is also a major financial asset that you need to take care of and protect.One of my greatest joys in life was buying a house and making it a home – it is my safe haven where I can truly just relax and be myself.
The opinions and insights expressed in this Q&A are solely those of its interviewee, Sandra Thompson, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.
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