James B. Lockhart III is the vice chairman of WL Ross & Co. LLC, where he is a member of the Management Committee, oversees the financial services investment team and serves on investment committees, including the two mortgage funds. Prior to joining WL Ross & Co. in 2009, Mr. Lockhart served as the director of the Federal Housing Finance Agency and chairman of its Oversight Board and was the director of its predecessor agency, the Office of Federal Housing Enterprise Oversight.
What is your outlook for the housing market now that the Trump administration has been in office for 100+ days?
The housing market will continue its slow recovery. Higher interest rates will slow down refinancing mortgages, but the purchase side is showing increasing strength despite low inventory levels and higher mortgage rates. Good signs are that the Millennial generation is starting to buy and the credit box is starting to prudently loosen.
You were among those sounding the warning bells early that the GSEs posed significant systemic risk. Has regulation addressed this or do you still believe this should be part of the broad GSE reform discussion?
Fannie Mae and Freddie Mac represented extremely large systemic risks with less than 1% capital, but its regulator had limited tools to deal with that risk until reform legislation was passed that created the Federal Housing Finance Agency less than 40 days before we put them into conservatorship. At the last minute, that law included Hank Paulson’s “bazooka” that gave us the tool to put them into conservatorship. Without that Treasury financing, Lehman would have paled in comparison.
GSE reform is still unfinished business almost nine years later. A key aspect of any reform would be clearly separating private and public sector functions, including significant capital for any private sector GSE replacements and reducing government’s role in housing. Assuming some government guarantee is needed, it should be transparent, market sensitive and countercyclical.
What do you think Congress and the administration can do to promote sustainable homeownership?
Sustainability is key. We did no one any favors by pushing affordable housing goals to unrealistic and frankly destructive levels. We need to do a better job at educating potential homebuyers, assessing their capability to afford a home and creating safer mortgage products that build home equity rather than use it as a piggy bank.
What aspects of your career as a naval officer and time onboard a submarine do you draw upon still today?
It taught me to live “underwater,” which was good training for my government jobs (PBGC, Social Security and OFHEO/FHFA) and, in particular, the housing market. Seriously, the navy was excellent leadership training and very helpful in learning to anticipate problems and deal with them under pressure.
You recently have focused on Social Security funding as a critical issue facing our country. What are some of the key reforms that are necessary in order to better secure Americans in retirement?
I recently cochaired with Senator Kent Conrad the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings. Social Security reform was one of the key recommendations. To prevent large benefit reductions in the future, we had a very balanced program of about 50% from slowing down growth of benefits for higher income while increasing the benefits for the lowest income and 50% from gradually increasing taxes slanted toward the higher income. It fixed Social Security by plugging a $11 trillion present value hole. Other recommendations included making it easier for small businesses to adopt 401(k)s and improving the reverse mortgage product, since for many retirees, home equity is their largest asset. The report can be found at: https://bipartisanpolicy.org/library/retirement-security/
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