Closing Remarks: Insights into HUD
Thank you, Meg (Meg Burns) for the kind introduction.
Now, before I get into more substantive issues, let me tell you a little about myself beyond the usual bio.
I have a background somewhat different from a lot of government and other lawyers, and it's not just because of my southern accent. 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.
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 all you guys do is complain about the bills.
Now I understand Joe Gormley and the other speakers have already covered a lot of ground, so let me center my remarks on some brief observations from my five months at HUD, an overview of some of Secretary Carson's major initiatives, a few concerns and issues specific to the Housing Policy Council, and then we can get somewhat more into the weeds - if you want - during the question and answer session.
My Experience at HUD
Six distinct impressions:
Quick HUD Overview
Secretary Carson has laid out an ambitious agenda for HUD.
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. As the Secretary, a successful neurosurgeon, likes to say, "you wouldn't gauge success by the number of patients entering a hospital, but by the number of people who are successfully healed."
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, means that there is room for better blocking and tackling with respect to financial reporting, management controls, work processes, and technology and automation.
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. Rules that are too complex, too vague, or too contradictory to be followed by those who are in good faith trying to do so, often result in problems for all involved - an issue I will return to later.
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.
But we are not just concerned with the number of words but the impact. I'm talking here specifically about the unintended consequences - like the loan that doesn't get made only for fear of liability to a capricious government.
Revisiting the False Claims Act
In that respect, 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.
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. 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.
Similar issues are present at GNMA.
We want to change the apparent reluctance of depository financial institutions and other major lenders to participate in FHA and GNMA programs.
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. Brian Montgomery, who I've known for several years, and I have already met to discuss.
What we are seeking to do 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.
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.
Disparate Impact Rule
We are reopening comment on whether the HUD's disparate impact (or discriminatory effects) rule under the Fair Housing Act and whether it is consistent with the Supreme Court's Inclusive Communities decision. Disparate impact, as contrasted with disparate treatment, is where a party can be found liable for discrimination through otherwise neutral practices, not intended to have a discriminatory effect, but which nevertheless have more impact on a protected class than on other persons.
Thoughtful people differ on the issue, though they generally line up on the left and right. This is a technical approach - because of the Supreme Court ruling, disparate impact is not going away. Although it is interesting to note that the plaintiffs lost the case on remand to the district court.
Key questions are about burdens of proof and persuasion, causation, what is the standard for a business justification defense and the role of statistics in establishing an initial case.
The notice asking for comments has been submitted to OMB and I expect it will be published a week. It is imperative that all who are interested in this rule submit comments, preferably but not necessarily, thoughtful ones. It isn't a plebiscite but a lot of comments going in one direction creates a tidal effect that can make rulemaking in that direction easier. I assure you we will have plenty of comments resisting any changes.
Risky Business: Downpayment Assistance and PACE
As my colleague, Joe Gormley, noted, we are closely looking at institutional downpayment assistance programs. These were expanded under the prior administration. FHA analysis is showing higher loss rates associated with loans supported by this program. At least in some cases, the downpayment assistance program is being financed through inflate home prices, leaving less real down payment equity. I expect that we will address this both through rulemaking and legal review of some of the positions underpinning the current downpayment assistance programs.
Finally, I would be remiss if I didn't mention that FHA stopped accepting PACE obligations on new FHA loans. Taxpayers should never get primed by another lien. HUD remains concerned with PACE assessments being placed on FHA loans after endorsement, and further actions may be warranted.
Let me conclude this on a personal note regarding our task at HUD.
I believe that fulfilling our primary mission of providing an affordable and sustainable housing market 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.
Thank you again for the invitation to join you this afternoon and I look forward to your questions.
|Content Archived: January 27, 2020|