Servant Leadership at HUD
Episode 9 – January 11, 2021
HUD Deputy Secretary Brian D. Montgomery discusses possible changes to FHA, COVID-19’s impact and serving in three presidential administrations.
Kirk Willison (Arch MI’s Vice President for Government and Industry Relations): Welcome to the first episode of the new year for the Arch Mortgage Insurance PolicyCast. I’m Kirk Willison, Arch MI’s Vice President for Government and Industry Relations. The unsung heroes of Washington (D.C.) aren’t the ones generally seen on the news. Instead, they’re the public servants entrusted with making the government work for all the people, improving services, expanding opportunities and solving problems in a crisis. And among the best of these public servants is my first guest for 2021 … Brian D. Montgomery. He has served the American people over a period spanning five decades, starting with the administration of President George H.W. Bush.
Currently (Jan. 11, 2021), Brian is Deputy Secretary of the U.S. Department of Housing and Urban Development, Number Two to Secretary Ben Carson. Brian is the only person in history to be confirmed as FHA Commissioner and Assistant Secretary for Housing for two administrations, under George W. Bush and Donald Trump. He even served in that capacity for several months during the first administration of President Barack Obama. He is widely admired and respected by advocates across the political spectrum for his commitment to increasing both homeownership and affordable housing. But what really stands out is his consistent willingness to engage with people representing all sides of policy debates.
Well, Brian Montgomery, welcome to the initial PolicyCast for the year 2021. And I really appreciate your coming and discussing issues that really are shaping housing policy in America. Brian, you came to Washington at the start of the Bush administration. And before that time, you had worked in Austin for the Texas Department of Housing and Community Affairs. What was your role there? And how did you come to meet then-Governor Bush?
Brian D. Montgomery (Deputy Secretary of Housing and Urban Development (HUD) 2020–2021): Well, thanks for having me on, Kirk. Glad to join you today. It’s a long story, so I’ll do the Cliff Notes version, but (I) actually got my start working for George H.W. Bush doing advance work back in the late ʼ80s when he was vice president, and then I served in his administration when he became President for just about three years — not the entire term. And so I had met George W. Bush and didn’t know him well but got involved in his gubernatorial campaign. And little did I know back then that I (would) spend the next 14 years or so working for him. And I had also served with his Dad (George H.W. Bush), so it was close to 17 years overall.
I very much enjoyed working in the administration, originally in the Texas Department of Commerce, but I migrated over to the housing (department). And, you know, at the time, the Texas (Department of) Housing was one of the largest in the country, still is, (and) we did everything … There was a first-time homebuyer program, our (Community Development Block Grant) CDBG (effort) (and) a lot of different programs, including weatherization and (others). I very much enjoyed it. Truth be told … My goal all along was I wanted to be the Assistant Secretary for Community Planning and Development, the field that I knew and enjoyed, and because of that, I ended up as FHA Commissioner, and I guess in some respects, the rest is history.
Willison: So, your first job, as I understand it, in the White House, was actually as a presidential advance (person) and … you logged over 1 million miles on Air Force One. I have to ask first, Did they let you keep those frequent flyer miles (or) did you have to turn those back over to the government?
Montgomery: Unfortunately, we didn’t get that, but, you know, we had great food. We all got billed for it (because) nothing is free on the plane. And you know … there’s no escape pod, by the way. People ask me, having watched the movie with Harrison Ford, “Well, is there is an escape pod?” There isn’t one, but the plane was on time 100% of the time. And I was blessed to fly all over the world with the comfort of on-time military (flights).
Willison: Well, you then transitioned into doing some other roles in the White House, including trying to increase homeownership rates, and then also (worked to) increase access to affordable housing. Those two issues probably served you well when you took the next step into becoming the Assistant Secretary for Housing and FHA Commissioner in February of 2005, just as the start of the second term (of George W. Bush). What issues confronted you at HUD when you walked into that job?
Montgomery: … When I was running Cabinet Affairs, we were intimately involved in everything over here at HUD, as we were (familiar) with the domestic policy agency. And, as you recall, President Bush sort of put down a marker that we needed to increase minority homeownership, (but) he didn’t say let’s throw underwriting out the window … But, history always repeats itself. Here we are, again, so how can we responsibly increase minority homeownership, right? So, I guess the key thing was, as you remember Kirk, in 2005 FHA almost vanished as an offering between the rise of the subprime market and some extraordinary (lending) products, FHA’s market share shrunk to about 2.5%. It was heading toward oblivion.
And I would be fine with that, you know. We’re a government agency, and if we thought our traditional homebuyer was getting a better deal somewhere, that would be great. I mean, one good thing about running the FHA at that time is you’re not really concerned about market share. There’s no sales quotas or bonuses or anything like that … FHA (didn’t) have any role whatsoever in the housing collapse, but (FHA) certainly had a huge role in the recovery, as I’m sure you saw first-hand … It really put an exclamation point on the critical role of making sure FHA is available in the good times and the bad … performing what we call our counter-cyclical role.
Willison: So then, you actually served not only to the end of the Bush administration, but in a rare move, you ended up serving for a few months in the new Obama administration, as well. It’s highly unusual. And actually, a mutual friend of ours says “That’s what really sets Brian apart — Brian’s a statesman.” And you’ve always made a point of saying that the work that you do at HUD and FHA transcends party politics … Did (that philosophy) serve you well (working) in a Democratic administration for a while?
Montgomery: I’m probably more pragmatic (with) respect of housing. Housing is a topic that doesn’t tend to be a wedge issue between the parties. I think everybody, generally speaking, supports having an affordable rental and housing (market) and making sure the poorest of the poor (and) the most vulnerable, including senior citizens and persons with disabilities, have access to safe, sanitary and decent housing. I don’t think anybody up on the Hill would disagree with that. It’s just trying to make your mark and showing it as a priority … is an ongoing challenge. Because it’s critical, especially now. And we can talk about this later, but during COVID-19 is where we really put an exclamation point on the critical role that HUD serves, particularly for those vulnerable populations.
Willison: Well, eventually, you did leave HUD, you went to work in the private sector for about eight years before you ended up heeding the call of Secretary Carson to go back into what he likes to call the ugliest building in America to reprise your role as FHA Commissioner, and I’m wondering, what is it that lured you back?
Montgomery: You’re right, we had started up a company after our service ended in (2009) with some of your fellow colleagues as well. And we sold it in May of 2017. As you know, when you go from being a business owner to an employee, it’s a little bit of a rude awakening, if you will, but I say that partially tongue-in-cheek. It was a fantastic company that bought us good people, but it really opened up the door for me to go back in, and I’d had some discussions with the folks in the Trump administration early on and talked to them about possibly (serving) in a role either as Deputy Secretary or coming back as FHA Commissioner. I still had some things left undone from my previous term. In particular, our IT infrastructure, which was, in my (opinion), one of the most gaping holes in FHA was dealing with this antiquated technology. So, politics being what they are these days, it took an unusually long time for me to get confirmed, as it did for other appointees, which I hope (is) something we can fix going forward. The confirmation process is going to be partisan, but we need to give a president, you know, his appointees, regardless of party. So, I’ll get off my political perch for a moment. But it’s just critical in that respect.
Willison: How similar were the challenges that you faced in 2017 versus what you faced when you first walked into the building in 2005?
Montgomery: Well certainly, FHA was very well known and very meaningful when I walked in 2018, but the other biggest change I noticed was we had fewer people left here. In 2009, FHA was somewhere around 3,100 employees. And when I came back, we were at around 2,500 people. And the market share had gone up. The insurance in force, as you know, had gone north of $1 trillion. When I first started, it was about $350 billion. A lot of the folks that have been here before had retired. Some had gone to other agencies that had better pay. Our friends across the street from the FHA at FDIC, had a higher pay scale, and I can’t begin to tell you how many good employees left … to go over to an agency where they could do the same job and get paid more.
So there were certainly more challenges around housing finance reform. You’ll recall (Fannie Mae and Freddie Mac) went under conservatorship at the end of the Bush administration (in 2008). Here we were eight or nine years later, still in conservatorship and two more years of that survivorship. And being a part of the housing finance reform working group, which we did have some success there.
Willison: How did you adapt to working with different secretaries?
Montgomery: It’s no different, Kirk, than in the private sector. Your bosses change and they all have their own sort of style, they all have their own agenda. And they all bring a perspective in there that’s unique. And clearly, they’re all well regarded in the industry for their housing finance (expertise). In the case of Secretary Carson, as one of the premier neurosurgeons, pediatric neurosurgeon, I will say he was, by far, the fastest learner I’ve ever run across, and he was completely emotionally invested on the topic of affordable housing in ways that were just really, really unique, given the big heart that he has.
And so there was a some adapting to it. I mean, Steve Preston was had come over from SBA and had spent time in the investment community on Wall Street. He was very focused, very metric-oriented. Alfonso Jackson’s expertise was more public housing, he had run two public housing agencies … So, I think I’m a bit of a people person myself, so it was easy to warm up to all of them.
Willison: One thing I can attest to in the variety of roles that you’ve had is your willingness to listen to groups, an array of groups on hot button issues, no matter the partisan divide they might come from sometimes. And I find that very refreshing and open. And I’m wondering was that ability and willingness to listen what made you able to really influence how you deal with Democrats in Congress as well?
Montgomery: I wanted to set a tone, and I’m going back to 2005 here, when I came into the office then, I wanted to deal with both parties and homeowners. Homeownership is important, but HUD, you know, has various roles, that touch, again, on the most vulnerable populations. So, it was obvious that I would reach out to the mortgage bankers and the homebuilders, but I also reached out to the National Low Income Housing Coalition. Sheila Crowley was running it at the time (and) I later reached out to Diane Yentel. And I said, “I’d like to come over and talk to you about your issues,” and I had read up on them and I don’t think she thought it was me calling. So I went over to her office. I think it was late on a Friday because there was hardly anybody there.
Montgomery: And myself and one of her deputies spent two hours talking about housing issues, and she was very helpful for the rest of my tenure while I was at HUD on issues, and I told (them) very candidly, “When there’s some things you hear that don’t sound right, just pick up the phone and call me.” So, you know, I was clearly aware that, you know, HUD’s mission is expansive. You can’t just be close-minded, you have to hear all perspectives and understand the best path forward. Being open-minded to something you want to do that may have been tried before and may have failed, for whatever reason. And it might have been something that previous administrations have tried. So I just tell people, be open-minded and be pragmatic, and that doesn’t mean there won’t be times when politics gets (involved). But the American people are also counting on us, right? They could care less about the politics. They just want to make sure they have a roof over their head and who can blame them?
Willison: Absolutely. You also had a knack for being at HUD during some really difficult times. I mean, hurricanes and floods seemed to follow you. And then you also experienced the worst two economic crises of our lifetimes. You had the Great Recession, the first go round and the pandemic of today. What did you learn from your time managing some of these issues during the Bush administration that you’ve been able to transfer and put into action during this Trump administration tenure?
Montgomery: Well, that’s a great question. Kirk. I learned a lot from it, in particular, the importance of working with other cabinet agencies in that respect. And working with the Office of Management and Budget and the policy councils at the White House. At the time — this is 2008 and 2009 — everybody being open-minded about, well, this is going to be a bit of a rescue agency, you know, so how can we help a lot of these borrowers? I used to call it getting lured in by the fool’s gold of the subprime market, how can we refinance them into a safe and secure, fully amortizing FHA loan, and we helped hundreds of thousands of them. Also, this is way off subject, but when I was running Cabinet Affairs at the White House, I was appointed the White House point of contact for the Shuttle Columbia disaster, which taught me a lot about working with disparate groups and working with the group that was set up to deal with the Accident Investigation Board.
I think all those (roles) helped prepare me in many respects, to deal with issues like this. And I think the key thing I learned was (the importance of) determining what the problem is, what happened and what you can do to resolve it. No idea sounds too crazy, right? You know that to deal with it, you want to make sure you get various opinions on the best path forward. And no one could have envisioned that we would have had a global pandemic. And unlike the housing collapse (2008), the COVID-19 pandemic was really no one’s fault. It certainly wasn’t the housing industry’s fault. And again, getting back to homeowners and citizens, wanting to make sure they have a lifeline. What was top of mind here and throughout the Trump administration … Secretary Carson and the President were very adamant to avoid (people) losing their home as a result of COVID-19.
Willison: Since you spent so much time of your tenure at HUD working on FHA, let’s do a little bit of a deep dive into some of the issues. Well, for starters, what do you see as the primary role of FHA in today’s housing finance system?
Montgomery: Well, I will again put an exclamation on making sure FHA is there, well capitalized and ready to help in good times and bad. As I referenced before, we’re not a for-profit corporation, per se, we obviously help ensure that our cash inlays exceed our cash outflows … As folks were going into the pandemic, we wanted to make sure that they would have a soft landing coming out of the pandemic. We knew that the situation was extremely unique — that some folks will be back on their feet (quickly) and some wouldn’t be back on their feet (as fast) … It was important that we were attached at the hip with FHFA and with the CFPB.
For a while, people thought “Oh, I have to make a lump sum payment” and things of that nature. So, it was critical to get the word out that we’re here to help. And luckily for FHA, we had been able to build up our capital reserves (and also had) the full faith of credit standing behind Ginnie Mae.
Willison: You mentioned this earlier, but you’ve been a tireless advocate for improving the technology infrastructure at HUD, as have some of your predecessors beforehand. How was the outdated technology harming FHA?
Montgomery: Well, I will give you a very real world example. So, we were never able to get the funding when I was here before; the previous administration made some improvements. But we were never able to get sort of the Holy Grail … and that is doing what Fannie Mae and Freddie Mac did, which is moving toward a data-centric architecture and moving away from paper. For our part, we have a multitude of systems built by the lowest bidder going back 30 or 35 years. Many of them were COBOL-based. Many of them were hard-coded on mainframes. We still have a lot of mainframes and we’re business rules-oriented. Well, that’s all dramatically changed now going forward. And it’s been an amazing success story, because of Congress … I don’t think it was my powers of persuasion or my good luck.
But, coming out of the government shutdown in February of 2019, they put down a $20 million down payment (for) the first phase of FHA modernization and between our FHA folks and our CIO, David Chou, they’ve just been miracle workers. And we have a fantastic women-owned small business that’s helping us. But to get back to your key point, doing claims with FHA has always been a paper-based process, including, especially, the supplemental claims. Can you imagine (us dealing with the pandemic) if we hadn’t deployed the first phase of what we call FHA Catalyst — a whole technology umbrella that allows (users to) submit electronic claims? We have over 1 million borrowers in forbearance right now, many of those will go to claim.
Imagine if we had to accept paper-based claims, hundreds of thousands of them in our homeownership centers that are working remotely. It would have been a disaster, quite frankly, but we can accept every one of those electronically. It used to take 17 months to do a claim, a supplemental claim. Within days of deploying this technology in February, we knocked it down to 17 minutes. So now with a bulk submission, you can file it in 17 seconds. And don’t tell Congress … I like to keep this a secret, but I think we’re going to come in way under $80 million. But keep that a secret. Okay?
Willison: Is there a lingering concern with the number of borrowers who are still in forbearance and their ability to repay or get back on schedule?
Montgomery: Absolutely, absolutely. And that’s, the thing that this (pandemic) is no one’s fault. No homeowner’s fault, no renter’s fault. Again we want to make sure no one loses their home here. So, we were laser-focused on what percentage of that group will be able to get back on their feet. Remember, for a period of time we had 15%, 20% and, at one point, 25% of people in forbearance. And now the numbers come down since. But it’s just making sure that they fully understand. By the way, we stood up the fha.gov website just a few months ago largely focused on COVID. The HUD website (was) so bad, we wanted to have somewhere where homeowners with FHA-insured loans could go quickly to get the information that they needed to get.
So, we absolutely are laser-focused on helping those families who come out of forbearance, who were reemployed, but, more so, we’re focused on those who are still in forbearance, and they need to move over to our traditional loss mitigation waterfall … We’ve got the tools and expertise to do that. And the new technology will help on that respect as well. But it’ll be a rough ride for a while, just because the numbers are so large, but I’m confident FHA will be able to do what they need to do.
Willison: Brian, what words of advice would you give to HUD Secretary designate Marcia Fudge as she begins her process of taking the reins?
Montgomery: Well, I’m probably the last one to give advice in that respect, but regardless of who’s coming in, I would just say the key thing is listen to the career staff. I mean, you’ve got some folks here that have been here 20 or 30 years, (even) 40 years. They have some very unique perspective … you have to have a certain level of patience. Here, as you know, the wheels of government turn slowly, and, particularly, the Administrative Procedures Act and rulemaking that can take two, three or four years right there, trying to get something through Congress these days.
Montgomery: So I think having your agenda, knowing that things can take time, recognizing that while FHA and the other offices perform heroic work around the country, we’re not the entire mortgage market. We’re not the entire housing provider universe. I think continuing to make sure that people understand and that Congress understands the vital role that HUD plays is important. And the other thing I would just say is a little off subject for this topic. But disaster recovery is a very large part of what HUD does, beyond the role of FEMA. Right now, we are managing $55 billion in disaster recovery. It’s a tremendous place to work. It’s enormously gratifying, helping people realize their dreams and making sure that government is there to give them a helping hand when they need it. And you know, I for one, and I suspect (HUD Secretary Marcia Fudge will) feel the same way … We can walk out the door here with our heads held high. I know that they’re doing something good for America. I’ll start waving my flag.
Willison: The nation has been fortunate to have a public servant like you guiding HUD through these different administrations and, honestly, on behalf of folks in the housing industry, I just want to offer my gratitude, my respect for the work that you’ve done, and really just say, job well done. And thanks for focusing on making housing that is safe and affordable, more available for Americans across this country. So, thank you for that. And thank you for the time today.
Montgomery: Thank you.
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As VP of Government and Industry Relations for Arch MI and a mortgage finance expert with more than 25 years in government relations, Kirk speaks candidly with an array of the most influential industry and policy thought leaders in the nation.
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