MReport September 2015 - Cool Under Pressure

TheMReport — News and strategies for the evolving mortgage marketplace.

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16 | Th e M Rep o RT cover story FDIC insured banks really saved our bacon. We kept capital levels from being reduced. And of course, I'm proud of our advocacy for loan modifica- tions to help good-faith borrow- ers who could stay in their home with some reasonable reduction in their mortgage payments. And for those families, we also kept their houses off the market, which was good for the economy. We didn't get nearly as much homeowner relief as I wanted, but we saved several hundred thousand homes. A lot of other groups have said that because of the FDIC's efforts, especially the systematic loan modification pro- tocols we pioneered at IndyMac and were widely emulated, we did end up saving several hun- dred thousand homes. We kept our eye on the customers of the bank, not the banks themselves. If you are a public servant, that is what you're supposed to do. The banks are a means to an end, which is to support the credit needs of the real economy. That's why you give them support in the form of insured deposits and access to the Federal Reserve lending facilities. Focusing on the public—that's one of the reasons why we were suc- cessful and why our image was enhanced during the crisis. M // What do you feel the role of the FDIC should be moving forward? BaIr // I think they're still in the residual end of the clean-up phase. They should be doing exactly what they are doing now, which is being a voice for strong, effec- tive, smart, prudential regulation. That starts with keeping a cap on leverage, especially for the very largest financial institutions that tend to be much more leveraged than the smaller, regional banks. Now is the time to also build up the deposit insurance fund. These may be the best times we're going to see economically. You use the good times to build up your reserves so when the bad times hit, you have something to fall back on. We didn't have time to do that before the last crisis. Raising deposit insurance premiums was the first thing I did when I became chair in June 2006. But there wasn't time to build the fund. However, we still managed without borrowing from taxpay- ers. The banks absorbed the costs. M // What issues do you feel the mortgage industry needs to address to prevent against future financial crises? BaIr // I think sustainability is really the key. Housing finance became a highly commoditized business where the financial incentives are front-loaded. I think those are bad economic incen- tives. You want the good players to dominate the market—the ones that are in there for the long term. You need to make sure the high flyers don't come in now that we have the housing market coming back and steal market share. If that occurs, you have good players needing to lower their standards to maintain market share. That's exactly what you don't want to happen. And that's exactly what did happen in the years leading up to the crisis. M // This month you begin your new role as President of Washington College, where you will be the first female president in the college's history. What drew you to this position? What are you most looking forward to achieving? BaIr // I think for a lot of the same reasons in answering your first question, why I wrote "Bullies of Wall Street". I want to give back. I think we have handed young people a bad hand, and a lot of that is due to the financial crisis. We really haven't gotten the economy back on it's footing again. You can see that with the weak labor market for young people. You can certainly see it with very high levels of student debt and rising tuition. Government needs to get smarter about subsidizing things, whether it's mortgages or whether it's health care or whether it's higher education. Government subsidies can work at cross-purposes. You increase demand, you increase costs. We really need to get smarter about how we spend our tax dollars. Kids are suffering from high student debt loads. We'll work hard on that at the college and hopefully pioneer some other ways to help students finance their education that does not require such high student debt loads. I know that's a priority for a lot of other people in academic leadership. We need to provide our students with a good liberal arts education that has value in today's market place. And we need to let employers know the value and relevance of a liberal arts degree to their labor needs. I have a liberal arts degree in phi- losophy and a law degree. I think my philosophy education gave me a good moral compass, which has always served my career well. M // as a female trailblazer who has made her impact felt in both the public and private sector, what advice do you have for other women wanting to succeed in business—especially a male-dominated field such as mortgage and finance? BaIr // It's a cliché but it's a good one—be true to yourself. Know what you're about. Know what you're trying to accomplish, and stick to that. Do your job, and do it well. One of the reasons, again, we were successful at the FDIC was we kept our eye on our core mission, which was to insure depositors and protect the people who use the banks, not the banks themselves. I think that was one of the keys to our success. You need to filter out all the white noise that can distract you, or worse, get you in trouble. Your job, if you're in banking or mortgage finance, is your customers. It's a good thing to make a fair profit for yourself so long as you are provid- ing value to your customer too—for instance, by putting a family into a mortgage and a house they can af- ford. That's in your short-term and long-term interest. For women, understand that finance is still a male-dominated industry. Just go into it under- standing you're going to have to be better than others. Don't get hung up on that. Just accept it. Do your homework. Hone your argu- ments. Demand that you be heard in a meeting. We contribute to the quality of the decision-making. We do have a bit of different perspec- tive. There's already been a lot of research on that—about women being a bit more risk averse and a little more concerned about the human side of business. I think we can add to the quality of the indus- try and the quality of the decision- making if people listen to us. 3MReport.indd "You want the good players to dominate the market—the ones that are in there for the long term. You need to make sure the high flyers don't come in now that we have the housing market coming back and steal market share."

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