Full Transcript is Below:
– Welcome into NFM TV. I’m your host, Greg Sher. This is a name that many in the IMB space, and all over the housing industry know very well. Mark Calabria, he’s the former Director of the FHFA. And not a popular guy during the pandemic. But we’ve got the benefit now of hindsight to say that a lot of the moves that Mark made turned out to be the right ones. And he has written a book that we’re gonna talk about called “Shelter From the Storm”. It’s a book about how a Covid mortgage meltdown was averted. Mark, Dr. Calabria, thank you for being with us on NFM TV.
– Greg, it’s a pleasure
– Really happy to have you here. I mean, we are an IMB. Any reluctance to showing up on a network that’s run by an IMB, given the fact that there was a lot of heat and steam brought your way by companies like mine?
– I think I can take it, and certainly spent my tenure, not just at FHFA, but before. I would quite frankly say most of the places, even pre-pandemic, that I went and spoke and appeared in engagement of FHFA were not necessarily places where they wanted to hear the message or be welcomed. But a piece of advice I always give to my friends is, spend more time with people you disagree with than with people you agree with, if you wanna learn something, at the end of the day.
– Take us back to the pandemic, to March, 2020. Things are moving very quickly. Companies like ours were getting million dollar margin calls, two, three, four, five, six million dollar margin calls every day. The CARES Act came out around that time. There was forbearance, not forgiveness. And a real panic set in among us that nobody was looking after us. And you were public enemy number one. Let’s talk about it.
– Obviously, crazy environment. To put it in perspective, between February and May of 2020 22 million jobs were lost in our economy. And to really kind of put that into perspective, in the great recession in 2008 you lost about nine million jobs over two years. And yet we lost 22 million in two months. And so the number one priority was to be able to keep that going. You really weren’t gonna see that kind of level of job loss without the stress on the housing and mortgage market. I’ll say as a side, it’s interesting, going back and forth. And I can’t remember who it was, but someone in the industry said to me at at one point. It’s like, Mark we were just hoping you’d be a voice for us. And I was like, you guys have lobbyists. That’s not me. I’m an independent arms length regulator whose job is to keep the market stable and to look out for households. My job is not to be an advocate for an industry. And again, I talk about in the book. I criticize other regulators. I think the Federal Reserve spends way too much time carrying water for Wall Street. I think the NCUA spends too much time carrying water for credit unions. That’s just not the job of a government regulator, to be a lobbyist for anybody. And I had, and I make, I make no bones about that. If you want an advocate, hire one. Don’t expect the government to be your front. But that said, we were completely open. We looked at all the data. We heard where people were coming from. We appreciated there’s a tremendous amount of uncertainty, which is why we tried to signal, this is what we see in the marketplace. For instance, we ran a lot of internal analysis. A lot of people were saying that forbearance rates were gonna get 30, 40, 50%. Our internal modeling said that it was gonna be nowhere near there. And I’ll note for the record, I said. In about the third week of March, Diana Olick asked me on CNBC, Mark, where do you think this is gonna get? And I said Diana, in the Fannie and Freddie book we’re probably gonna get just above 6% forbearance rates in the middle of May. It peaked middle of May, 6.7. We were dead on accurate. And we repeatedly said we’ll change position if we see different data. As I mentioned in the book, we had the data on the servicers. I believe in March, 2020 there were 346 non-bank servicers that Fannie and Freddie did business with. I had their income statements. I had their balance sheets. We immediately jumped on the phone with the 30 largest. And said hey, we’ve got your financials. Tell me what’s changed in the last couple of days. And so we really were a data intensive, tremendous amount of outreach to the industry. And again, not one of those 30 top servicers we talked to said, told me in person that they needed help. So for me, I’m very proud of what we did. I’ll note my tenure, 2021-2022, most profitable years ever for the mortgage industry.
– If you had to do it over again, would you have communicated more? Would you have communicated differently? What would’ve happened so maybe you weren’t the target of the kinds of attacks you faced from IMBs and others?
– I think to some degree that some of the attacks were just, just inevitable. But let me kinda give you some background. I really took away, and I recognize this counter conventional wisdom that to me, the lesson of Lehman Brothers in 2008 is if you give a company a reason to believe that the government will come to their rescue. And of course the rescue of Bear Stearns led Lehman to believe they would be rescued. They will not take the things to do to avoid a rescue. So for instance we know Lehman had at least three offers to be bought. And the leadership of Lehman repeatedly said we will not take less per share than what Bear got. And of course, that meant they didn’t do what they needed to do. So I don’t mention the names, but for instance there were two rather large servicers in 2020 that were on the fence, who had private equity parents who had pulled out billions out of these companies. And what we said to them was, if you want to keep the value of this platform, why don’t you put some of that money back? Because you know what? That’s how capitalism works. You take the upside, you take the downside. And I felt like if I had not been direct with people they would’ve continued, because even in to say July, August all the commentators, all the trades were, “don’t worry, a liquidity facility is coming.” And when people hear that, they do not make the changes they need to make to survive. So there are servicers that are standing today because we took tough love. And if you don’t, then people aren’t gonna actually listen to it. They’re gonna like, oh well. Congress, the Fed, everybody will bail us out. So I felt like there really was no alternative but to be blunt
– There is a perception, I think. Let me know if you believe this to be true, the perception anyway that you’re a big bank guy, that you’re not a huge fan of independent mortgage bankers. Is there truth to that?
– It’s complete spin, and this came up. I’ll say one of the proudest moments of my life was working for Sandra Shelby when we opposed the big bank tart bailout. And so the fact that a lot of the people who throw that criticism around are actually tart big bank defenders in bailouts. I’ve been consistently. I expect, again, capitalism works if you take the upside, you take the downside. That applies to Citi Bank. That applies to Goldman. That applies to Fannie. That applies to Rocket or any IMB. That applies to everybody. Demanding consistency and principleness, you’re not. It’s unfortunately the case in Washington that the view is if you’re not willing to bend some rules for somebody then you’re for somebody else. I’m for equality under the law. Everybody gets treated the same. And that’s true whether you’re an independent mortgage bank. It’s true whether you’re a depository. And that’s what I have striven for. So again, there were a lot of people who didn’t like the fact that we weren’t just doing giveaways. I’ll tell you, my biggest disappointment during covid was the number of people who put consistently, their own short term profitability before the public good. When I’m trying to keep people in their homes, so that people aren’t dying.
– How do we answer this riddle? You’re in favor of privatizing Fannie and Freddie.
– They’re already private. When have they stopped being private?
– You want to take them out of conservatorship, yes?
– That’s what the law requires.
– Yeah, so you wanna take them out of conservatorship. And so if that were to happen, given the lack of, of private capital in the mortgage purchasing space, what happens to IMBs, given the fact that they rely almost solely on those agencies?
– I mean, I appreciate the concern, but let’s start with, as I said from day one when I went to FHFA and I said, look, my job is not to decide what the future of Fannie and Freddie is. My job is to carry out the law. And the law requires that Fannie and Freddie be fixed to be put outta conservatorship. This kind of spin about, it’s Congress’s decision, that’s just a lie. There is nothing, nothing at all that requires Congress to decide the future of Fannie and Freddie. Congress has decided the future of Fannie and Freddie, and that is to fix them and get them outta conservatorship. Now, if Congress wanted to make a different set of decisions, that’s fine. I would’ve followed that. But this point about like, oh Calabria’s got an agenda. Yeah, my agenda is to see the laws carried out as written. Which should be what anybody in Washington should do. So to me, if you don’t like Fannie and Freddies’s charters and what the law is, change it. But don’t ask people to just ignore and break the law. That I don’t agree with.
– So late in the book you said, and I quote, “I have my views on how I wish the mortgage market was structured and regulated.” In your opinion, is the mortgage market broken?
– Absolutely. I mean, the fact, the number how bailouts we’ve done for it. And again, there’s just, there’s no real accountability, whether it’s FHFA, Fannie and Freddie. And again, we lead the world in mortgage socialism. I’m a capitalist. I’m a free market guy. I make no bones about that, because that is what has delivered wealth and freedom across history. Why do we want this socialized mortgage market? Now, I understand a lot of people get rich off of it. But to me, capitalism, free markets are you take the upside, you take the downside with your business. And so this notion of, oh, I can make a lot of money. Just dump the risk on the taxpayer. I’m supposed to respect that? I don’t. I respect true entrepreneurship that takes risks, and takes the downside.
– That’s not limited to mortgage though, right?
– I would not have, and I would’ve not have done the rest of the rescues. But I’m not responsible for. FHFA was not my job to decide. I thought PPP was extremely poorly structured and poorly implemented. My mother taught me a lot of lessons growing up. And one of the things she taught me was two wrongs don’t make a right. And so I have no sympathy from people who say, oh well. Somebody else got a bailout. So what? People who make mortgages should be well capitalized, and that there should be a level playing field. And we need, for instance, it’s ridiculous what we’re seeing done to community institutions. And say community banks and America need regulatory relief. And instead we got an administration that’s crushing them. So part of the problem is that we’ve just made it so difficult for depositories like credit unions to do mortgages.
– Banks also go in and out of the mortgage market. Should there be governors in place to make sure that they can’t just get in and out when they want? ‘Cause that’s very disruptive. And every time, IMBs come to the rescue. The real question, to me, is, if IMBs are so dependent on Fannie and Freddie, which they are, then why don’t you want a strong Fannie and Freddie? Why is the industry against a strong Fannie and Freddie, when that’s what you depend on? It just doesn’t make sense to me. If I was highly dependent on a particular infrastructure to do my business, I would want that infrastructure to be strong, not weak.
– I was critical of you at the time. Again, there was a lot of uncertainty, a lot of panic, a lot of lives at stake. Nobody knew what was happening. No one knew if you’d be dead in a week. There was a lot going on.
– That’s why we tried to give as much certainty as we could. Now, of course I’m frustrated at the amount of misinformation and disinformation that was put out there sometimes. I mean, there was definitely scare tactics put out by some that wanted you to be scared. That was not us. We were putting out what we were doing. We were saying what we were gonna do. Obviously, we were taking feedback, We were certainly focused on trying to make sure that homeowners, renters could stay in their homes. Because again, we looked at this first and foremost as a public health crisis. Certainly one of the reasons for the book is to try to clarify the history, and to clarify the story. Because there were people out there who wanted you to be afraid, Greg. And I was not among one of them.
– You were talking to IMBs though. That’s the thing that not a lot of people knew about you. You had a group of 20 or so that you cite in your book that you talk to regularly, to get your finger on the pulse of what was happening on that side of the universe. Maybe at the time you could have communicated that a little bit better.
– Fully agree. And part of the reason of the book is to try to kind of communicate this after the fact. You can always do a better job at communication. I’d be the first to say that. And there’s always trade offs on what you respond to. And again I, I. It’s sad that some of the misinformation that was put out there. And again, we tried to be with the press. But I’d be the first to say, yeah, you can always communicate things better. And we could have always done a better job.
– The rules surrounding forbearance, there were none. So if you, whether you had a hardship or not, you were encouraged to only apply if you had a hardship. But why, given how you feel about people with their hands out that don’t need it, did you allow that to go through in that manner?
– The forbearance programs at Fannie and Freddie were set up before the CARES Act. So we were about three weeks ahead of the CARES Act. And the CARES Act codified part of what we were doing, but they eliminated other parts of what we were doing. And so the structure we set up was, we would allow you to reach out to your servicer. And you would have to attest, did you suffer a hardship? And then the servicer would basically, three months later come and document everything, rather than, one of the problems in 2008 was all the documentation on the front end that took people forever to get in. And so again, we weren’t forgiving anything. Everybody was gonna have to pay everything back. There was gonna be, essentially, documentation of the hardship after we got you in, because of the time and the because of the uncertainties you talked about.
– To your credit, forbearance over forgiveness was a brilliant stroke. I commend you on that.
– This is the thing to keep in mind. Compared to the 2008 response, we helped twice as many people, six times as quickly, and at a fraction of the cost. We essentially paid for everything we did. Whereas in 2008, it cost about $30 billion for the homeowner assistance that was done in 2008. So again, to me, we set the model for how this should be done going forward, in my view. And I make no bones about it. I mean, were there some things every do differently? Absolutely. Would I have done things completely differently? Absolutely not.
– I certainly see you through a completely different light, and appreciate what you did, how you did it, and most importantly, the results. You were right. But people hear your name that are in our industry and they don’t, they haven’t read your book. They haven’t gotten to know you at all. So I’d love to give you an opportunity to just address the community.
– First of all, I do want to thank people. I mean, there was a tremendous amount of stress on the industry. When we all went home in 2020, and I recognize remote work. And a lot of backroom operations were shut down. And so a lot of people put in a lot of time around the clock, and this kept the market going and it kept people in the home. So yeah, I want to thank the many people who actually put in those hours and did that work. Because it was a joint partnership. The industry had its best years ever. And not to mention the largest increases in ownership. And for instance, during my tenure, largest annualized increase in black home ownership during my time. We delivered on home ownership gains. We delivered on profitability for the industry. And we all did at the time we were building Fannie and Freddie. And we actually strengthened underwriting standards as well, so we didn’t have to water down the quality of mortgages. We showed in 2020-2021 how to do this in a strong market responsible manner. And again, what I would argue is have a longer term perspective. Have a perspective of strengthening the system, rather than priorities and short term profits. Because that’s what’s gonna make it longer. And that’s what’s gonna make it work for lenders, for borrowers, for the taxpayer.
– Right now, we’re not in a great time. When do you think it’s gonna rebound and what will it take?
– We need to deal with the supply issues. We need to continue building housing. We need to get inflation under control. And you need to get the budget situation under control, because that feeds into inflation. Prices are still way outta whack with income. I think we’ve still got a price adjustment.
– Put on your prognosticator economist hat here. When do you think interest rates are gonna be, let’s say, in the mid fives? And when the Fed starts to cut instead of raising?
– So I know that most market participants think we’re gonna get rate cuts next year. I don’t see it, partly because I don’t see the inflation being there. But also because the Fed is a deeply political institution, as much as they like to pretend otherwise. And it’s an election year. They’re not gonna, they don’t make big moves in an election year, unless it’s really warranted. So I couldn’t see more than 50 basis points of cuts next year, if that. I think it’s really gonna be 2025, maybe even 2026 before you see mortgage rates around 5%. I wish we’d get back to more normalized rates in a better environment quicker. But I just don’t see that in the cards at this point.
– You’re a music lover, you attend concerts often. I was told you’re a Grateful Dead fan. Which I’m a Grateful Dead fan as well. And then you’re a scuba diver. That’s what I want to talk about for a moment. I got a picture here of you underwater. That’s pretty risky. I don’t know, you seem. You’re a data driven guy. That seems like a little bit out of character.
– For me, it’s a bit of pushing the envelope. I sometimes say, hour underwater of 10 minutes of bliss with 50 minutes of near panic. It’s a completely different environment, that takes you out of your every day. And you have to forget about everything else going on in the world, and focus on the here and now.
– So what’s the future for you? Are you done with government? Are you gonna be back making an impact again? Where do you hope? What’s the next chapter?
– I’m a very big believer in public service. This country’s been good to me. And I am certainly there, if there makes a role for the future to be able to contribute in a way to good public policy. And I would encourage others to get involved.
– Any parting words? Or have we covered all the bases?
– Again, I really just want to thank you, Greg for taking the time to read the book, and the feedback and the interest. And I do want to thank, ,again, a lot of the industry, including Fannie and Freddie, really rose to the occasion during the pandemic. And I want to commend everybody that did that. Almost everybody in the industry that’s read the book has said to me, wow, I didn’t know that. And so there’s a lot of things to kind of learn. There’s a lot of things to reminisce about. I’m sure it brought back some memories, good and bad.
– Yeah, it did. Well, it’s just great to get to know the man and the mind behind the decisions that were made. And really appreciate your service to the country, and for helping us get through those really frightening moments. Book is “Shelter From the Storm: How a Covid Mortgage Meltdown was Averted”. I definitely recommend everyone go out and get this book. I really enjoyed it. First book I’ve read since “Old Yeller” in seventh grade. So that’s how much this book meant to me. Mark, thank you.
– Thanks, Greg. Be well.
– Appreciate your time on NFM TV. I’m Greg Sher, hope you’ve enjoyed this as well. We’ll see you again next time.