As prepared for delivery. The speaker may add or subtract comments during his presentation.

Thank you, Wayne, for the kind introduction.

Needless to say, there has been a lot of activity on the Hill impacting the industry and the Department, and we look forward to a new era of working with the MBA as we try to craft good solutions for the American people.

Now, before I get into more substantive issues, let me tell you a little about myself beyond the formal bio that Wayne covered.

Personal Background

I have a background somewhat different from a lot of government and other lawyers, and it's not just because of my southern accent. I am indeed from the other L.A., Lower Alabama. Before I was confirmed by the Senate to become HUD's General Counsel, I had been in private practice with one law firm, Bradley, for almost 30 years.

How I got there is actually similar to how I got here. When I was in law school at the University of Virginia, then-retired Supreme Court Justice Lewis Powell was spending a semester at the school. I had the privilege and opportunity to visit with him, in the Dome Room of the Rotunda no less. In the course of the conversation, which passed through a discussion about his former law clerk, Rob Couch, who was also my colleague at Bradley, former General Counsel of HUD, President of Ginnie Mae, and Chairman of MBA, I asked Justice Powell, "where should I practice law?" And he replied, "go somewhere you can make a difference," intimating that he thought a smaller city was a better choice than New York City, where I was planning to clerk that summer.

So, I ended up in Birmingham, Alabama, where I merged about a hundred banks and founded several new ones and helped structure commercial mortgage backed securities before my "side job" of affordable housing eventually became my main job - and where I really found I was making a difference. It was a win - win - win for the communities served and their citizens, the developers, and their financial partners. It was doing well while doing good. When you hear talk of public private partnerships, rest assured that I know what that really means.

Thus, I consider myself to be a "financial plumber," basically building and fixing the financial pipes of housing transactions. And like a plumber, I had to put up with other people's "stuff," was called all hours of the day and night, billed by the hour, and everyone complained about the bills. Sound familiar?

I believe I can help make a difference at HUD by working together with the financial services industry and other stakeholders to find solutions, with an emphasis on the private market, to some of the challenges in housing policy, regulatory compliance and related issues.

As I looked through your agenda for the next few days, I saw that you are covering a lot of ground - from state regulatory trends to false claims. With that in mind let me center my remarks on some brief observations from my 119 days at HUD, a few concerns and issues specific to MBA members and their counsel, and then we can get somewhat more into the legal weeds in the question and answer session.

Quick HUD Overview

I have concluded that HUD is principally a large financial institution with significant philanthropic and enforcement functions. Our first task is to be prudent stewards of the mutual mortgage insurance fund of the FHA, which directly backs more than a trillion dollars of loans, which is the asset side of the house, and on the liability side, the almost two trillion dollars in securities that Ginnie Mae, which is under the HUD umbrella, issues to fund the loans for our lending partners. We also serve as a source of funding, through grants to thousands of state and local partners, for housing and related matters for our citizens in the most need. Finally, we stand vigilant in enforcing the protections afforded under the Fair Housing Act, as we have for 50 years, the anniversary that we celebrated just this month.

Secretary Carson has laid out an ambitious agenda for us. Though half of the appointed officials of HUD only arrived, me included, in January, and we are still waiting on Senate action on about a third of the full complement, including Brian Montgomery, nominated to serve as FHA Commissioner, we are hard at work and I expect that you will see, at an increasing pace, tangible action over the next several months.

Secretary Carson's prescription for HUD is the following:

First, Secretary Carson wants HUD to focus on outcomes, not inputs. We want to measure and improve upon the number of our fellow citizens that we move from supportive programs to the private sector. We want to measure success by the number of people who graduate from needs-based programs, not how much money we spend. This will not only save tax dollars but will also permit is to serve those in need who are now waiting in line.

Second, we have established an "Integrity Task Force" chaired by our CFO, Irv Dennis, a former EY Senior Partner, and which I am a member of. The multiplicity and complexity of HUD programs, combined with other factors, such as the Department not having an Assistant Secretary for Administration from 2009 until January of this year, and no CFO since 2015 until January - means that there is much room for better blocking and tackling with respect to financial reporting, management controls, work processes, and technology and automation. We want to address on a wide basis the type of question an FHA lender recently asked me, "how in the world is Community Planning and Development involved in … environmental review of an FHA loan." We also want to address the thousands of open audit items that have accumulated over the years. It's not glamorous, but it is needed. It will take time, but in the end, I think we will remake the way HUD does business and how it is perceived.

Third, in many ways going hand in hand with our efforts to remake our financial and controls structure and work processes, is regulatory relief, which is itself a major issue at the Department and one of my primary objectives. Rules that are too complex, too vague, or too contradictory to be followed by those who are in good faith trying to do so necessarily result in problems for all involved. I believe the best kind of enforcement is that which doesn't have to occur because the parties know what they are supposed to do and do it.

Overall, the Code of Federal Regulations has doubled in the past five years to more than 185,000 pages, which someone has calculated to be the equivalent of more than 100 Bibles. Though not as infallible. As for HUD's contribution to this, I would say we've done our tithe. When we get to Q&A I will demonstrate that even the General Counsel of HUD isn't familiar with all the issues or even programs over this vast expanse.

One of the first actions by the President was to impose a two-for-one rule on new federal regulations. He ordered that for every new regulation, two old regulations must be eliminated. But we are not just concerned with the number of words but the impact. Especially the unintended consequences -the loan that doesn't get made only for fear of liability to a capricious government.

Initiative on Sexual Harassment

That said, we will be vigilant for the health, safety and well-being of the people we serve.

Which brings me to the first of these issues I want to highlight today - sexual harassment in housing.

Too many landlords - public and private - managers and their employees attempt to prey on vulnerable women - and yes, some men as well.

No person should have to tolerate sexual harassment to keep a roof over her head - everyone should feel safe and secure. That's why HUD just the other week joined the Justice Department in a new nationwide initiative to combat sexual harassment in housing.

This is discrimination plain and clear and it will not be tolerated.

Controversy on Service/Support Animals

Second, one area of unintended consequences is existing guidance which appears to have led to abuse concerning "assistance" (better known as "emotional support") animals.

The law specifically states that it violates the Fair Housing Act to deny a person with a disability a reasonable accommodation. This has been interpreted in broad sub-regulatory guidance in 2013 to permit assistance animals in a wide range of circumstances.

Most people understand when you talk about service animals, like guide dogs for the blind. Those rights arise under the Americans with Disabilities Act. On the other hand, many, especially apartment managers who are not lawyers and have a hundred things to worry about, have difficulty understanding the nuanced requirements of the Fair Housing Act when it comes to "assistance" animals for people with disabilities that aren't apparent, such as mental illness.

You may not be aware, but disability tops the list of fair housing complaints the Department receives. It accounts for nearly 55 percent of all complaints. Of these disability complaints, nearly half involve service and assistance animals - and yes, sometimes the animal is not the usual cat, dog or hamster. We too have heard references to peacocks on the plane and pigs in the parlor. In comparison, race-based complaints, which was the primary impetus for the Fair Housing Act, comprise about 25% of total complaints. Thus, tenant complaints regarding assistance animals require a significant amount of HUD resources. It is clear in at least some cases that people are just trying to get special - free - treatment for Wilbur.

That's why HUD anticipates providing clearer, easier to follow guidance for landlords and persons with disabilities regarding their obligations and rights when it comes to a request for assistance animals.

Revisiting the False Claims Act

Third, turning from cats and dogs, let me tackle the big elephant in the room, the False Claims Act.

It is absolutely no secret that HUD and the Justice Department have been accused in the past of using the Act to sue FHA lenders for unintentional mistakes and honest errors they made in the origination of FHA loans. And many high-quality lenders have either left the FHA altogether, or have stayed in the program but have made it costlier for borrowers who can least afford it.

Just in the last eight years, the percentage of depository institutions constituting FHA mortgage originators fell from nearly 45% down to 15%. Moreover, as the percentage of non-depository lenders has increased, so too, has our long-term risk because of the inherently lower liquidity of non-depository lenders. Remember my initial remarks about the primary importance of protecting the mutual mortgage insurance fund? We mean it. Further, with a lack of depository institution participants, the availability of FHA loans has marginally decreased. We especially anticipate this in downturns when FHA is a critical countercyclical force.

We want to change the apparent reluctance of depository financial institutions and other major lenders to participate in FHA programs.

Secretary Carson has been clear and consistent in his commitment that the Department will address this challenge. At the MBA National Convention in Denver last October, the Secretary acknowledged complaints regarding undue risks for lenders because of lack of clarity, along with how such errors could expose lenders to disproportionate liability.

I can assure you we are working diligently to address this situation.

I am working closely with the Justice Department to review and address our use of the False Claims Act to sue FHA lenders. Dana Wade and I have received valuable feedback from lenders and other stakeholders in our request for input on regulatory reform and remaking the remedies process.

As an aside, let me emphasize how important it is for the financial services industry - and their lawyers - to provide comments, especially in formal rulemaking. I assure you that others interested in the status quo of a tilted table do. Send comments. Do not let the perfect be the enemy of the good - send something.

Back to the False Claims Act, the FHA is looking at its defect taxonomy, which establishes defect categories and how we view the severity of each defect, as well as the system of enforcement. We are working with our Department of Justice colleagues as we strive to make clearer our guidance on such enforcement matters.

What we are seeking to do prospectively is limit the use of the False Claims Act to a tool of last resort, where the conduct is egregious, and rely upon other well-established and existing remedies for more routine matters.

But let me be clear, there will be no room at the FHA - or Ginnie Mae - for bad actors. We will not overlook those lenders who rely on audit roulette.

I am a voting member of the FHA Mortgagee Review Board. Just last week at our meeting, we heard cases that included both bad actors and careless mistakes. The former are no longer FHA lenders and the latter have penalties commensurate with the conduct.

The end goal for all of us is for every good lender who exercises diligence and good faith to make responsible loans, and services them well, to feel confident that they can fully participate in HUD's programs and make affordable loans possible for millions of deserving American families and housing providers on a profitable basis.

Conclusion

Let me conclude this on a personal note regarding our task at HUD.

I believe that fulfilling our primary mission of providing sustainable homeownership opportunities can best be accomplished if we are good stewards on behalf of taxpayers and become less reliant on government fiat and more on free market solutions - with an important role for public-private partnerships. We must especially be cautious of government exercising authority beyond its modest competency and especially of the unintended consequences of what we do.

As the new General Counsel, I look forward to working with you to help us meet our challenges and together making a difference.

Thank you again for the invitation to join you this afternoon for lunch.

I look forward to your questions.

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