The Urban Institute “gathers data, conducts research, evaluates programs, offers technical assistance overseas, and educates Americans on social and economic issues — to foster sound public policy and effective government,” according to its mission statement. When Sarah Rosen Wartell became president of the Institute in February 2012, she was well prepared to advance those goals: She co-founded the Center for American Progress in 2003 and served as its first chief operating officer and general counsel. She served as President Bill Clinton’s deputy assistant for economic policy from 1998 to 2000, and she worked at the Department of Housing and Urban Development from 1993 to 1998, advising the federal housing commissioner on housing finance, mortgage markets, and consumer protection.
One milestone of her tenure so far has been the publication in June of an Urban Institute policy paper, A Pragmatic Plan for Housing Finance Reform, which she co-authored, and which offers some thoughtful suggestions about the future of Fannie Mae and Freddie Mac. The Score caught up with her to discuss that paper and other issues that are on her mind.
1. Your paper was co-authored by others including, Mark Zandi, chief economist of Moody’s Analytics, Phillip L. Swagel, a professor at the School of Public Policy at the University of Maryland, and Ellen Seidman, who recently joined the Urban Institute. Was the construct of the plan already set in everyone’s minds, or was the development of the plan more of a process?
While we shared a few premises from the start, the four of us came to this with different experiences. Phill was at Treasury during the Bush Administration. Ellen and I served in the Clinton White House. Ellen is also a former regulator and director of the Office of Thrift Supervision and continues to be deeply involved in the CDFI [Community Development Financial Institutions] sector and consumer products. Mark has been an analyst in the private sector for many years. Each of us had been involved in previous reform exercises. In short, we approached this with a diverse set of experiences and perspectives.
We began with agreement on a few key concepts: Government will always bear catastrophic risk, and taxpayers will intervene to prevent free fall; therefore, it is better to have a priced and paid-for credit guarantee for investors rather than an implicit guarantee. We also all believed that there should be more private capital ahead of taxpayers than there had been in the past. But we had different ideas about the right way to approach and structure the guarantee. We talked extensively to produce a plan that won our collective confidence.
2. Are you pleased with the initial response to your plan, and how would you characterize the political environment into which you have introduced the plan?
We have been pleased with the reception to our “pragmatic plan.” It came out shortly before the Corker-Warner plan, with which it shares a number of important features. Our report helped to provide a rationale for the policies in areas of overlap. That said, there are several important differences that have received less attention, such as levels of capital, our focus on creating MBS [mortgage-backed securities] insurers and entities that can be regulated for capital adequacy, and the structure of the Mortgage Access Fund.
Personally, I have been pleased to see that 10 members of the Senate Banking Committee signed onto Corker-Warner and all members are now turning their attention to working through complicated issues. I am also encouraged by the level of attention all the various proposals are getting in earnest in the Senate and the interest from Senate staff in talking through the details. The PATH Act markup by the House Financial Services Committee takes a different course. I do think there is significant work ahead before we could imagine a plan that could get to the president’s desk.
Still, the president’s recent remarks, which seem to embrace the direction embodied in our plan, and increased engagement from the White House, give me hope that we can accelerate the development and adoption of a pragmatic plan.
3. Within the single securitization facility proposed by the plan, one role that is described focuses on data collection with an emphasis on transparency. Can you explain how the facility will leverage data to increase transparency and efficiency?
Data needs to be both collected and disseminated in a way that maximizes efficiency and accuracy. While there are some exceptions, we should generally strive to pull data from business systems and make it available in a format that allows timely, easy access and manipulation by standard statistical programs—for example, not in PDFs. While some personally identifiable data will need to be collected, such data must be protected and not disseminated beyond what is necessary for regulatory purposes.
In general, we suggest data being made available to the public in a usable format at no or minimal cost. That said, the timing of collection and dissemination of data must take into account the need to maintain a deep and liquid TBA [To Be Announced] market. This means that loan-level data on MBS that has not yet been issued should not be required, and it may also require some delay in dissemination (not collection) of loan-level data, even after the MBS is issued.
4. How does your plan help creditworthy borrowers that are traditionally underserved obtain an affordable mortgage loan?
First, by supporting consistent availability of credit, we hope that borrowers will build credit over time and participate in the mainstream mortgage market.
We provide sources of additional credit enhancement in the form of the Mortgage Access Fund, which will accelerate the development, testing and implementation of appropriate pricing for new products that can better support underserved markets
A key difference in our plan from the past, however, is that we do not ask credit insurers to provide credit at concessionary rates to some borrowers as a condition of their mandate and access to the guarantee. Instead, we assert a fee on all MBS and use those proceeds to support the Market Access Fund.
5. This summer, Urban Institute announced the hiring of several very high-profile housing finance experts, including Laurie Goodman, formerly a managing director at Amherst Securities Group; Jim Parrott, former senior advisor with the National Economic Council; Jun Zhu, formerly a senior economist with Freddie Mac; and Ellen Seidman, who was formerly director of the Office of Thrift Supervision and who co-authored the housing finance plan. How will these experts help shape the Urban Institute’s goals and priorities in 2014?
This fall, we will publicly announce a new center at the Urban Institute: the Housing Finance Policy Center. Laurie will be center director and Jim and Ellen will serve in supporting leadership roles. Jun and other crackerjack-smart analysts from other urban research centers who study assets, demographics, housing, and communities will all lend expertise to the HFPC’s work. The center will create a hub for dialogue, based on analysis and knowledge, among government, practitioners, advocates, academics, and private market actors in banking and finance. We want it to become a repository for large and complex data, making it available to and usable by policymakers and academics and ultimately communities, advocates, and the media. This “dream team” will support the development of evidence-based policy in a rapidly changing policy sphere.