FHFA Prepared Remarks of Melvin Watt

On October 20, the Federal Housing Finance Agency (FHFA) released the prepared remarks of Melvin L. Watt at the Mortgage Bankers Association Annual Convention.

Prepared Remarks of Melvin L. Watt, Director, FHFA, At the Mortgage Bankers Association Annual Convention

Prepared Remarks of Melvin L. Watt
Director, Federal Housing Finance Agency
At the Mortgage Bankers Association Annual Convention
Las Vegas, Nevada?

Thank you for having me here this morning.  It’s a pleasure to have my first op?portunity to share the stage with Secretary Castro.  And, of course, I’m always happy to have the opportunity to talk about the important progress we are making at the Federal Housing Finance Agency (FHFA) to meet our obligations to ensure safety and soundness and liquidity in the housing finance market.  I am very pleased to be speaking to mortgage bankers who play an important role in our housing market. 

As regulator of the Federal Home Loan Banks and as regulator and conservator of Fannie Mae and Freddie Mac (the Enterprises), we are working on a number of issues at FHFA that relate to our statutory obligations.  We recently requested input and comment on several issues involving the Enterprises, including guarantee fees, eligibility requirements for their private mortgage insurer counterparties, proposed housing goal levels for 2015 through 2017, and a proposed Single Security structure.  We have also requested comment on a Proposed Rule concerning the membership standards for the Federal Home Loan Banks. 

In addition to these issues and proposals, FHFA continues to work on other priorities as well.  We know that access to credit remains tight for many borrowers, and we are also working to address this issue in a responsible and thoughtful manner. Additionally, FHFA continues to evaluate ways to refine and improve the loss mitigation and foreclosure prevention policies at the Enterprises, because we understand that many individuals and families are still facing the possibility of foreclosure and are looking for alternatives to stay in their homes.  I want to assure you that we are hard at work and making good progress on all these issues, several of which I will highlight in my remarks today. 

Let me start by talking about one of FHFA’s key initiatives, revising and clarifying the Representation and Warranty Framework (Framework) under which lenders and the Enterprises operate.  As you know, these representations and warranties provide the necessary assurances that allow Fannie Mae and Freddie Mac to purchase loans in an efficient and responsible manner without checking each loan individually or being at each closing.  They also provide the Enterprises remedies to address situations where a lender’s obligations to meet the Enterprises’ purchase guidelines have not been fully met.  

Over the last several years, we have worked to refine the Representation and Warranty Framework and to have the Enterprises place increased attention and resources on upfront quality control reviews.  As part of this process, we have listened closely to your concerns about the impact that loan repurchases have had on your businesses, and we understand that addressing these concerns in ways that are mutually satisfactory to you and the Enterprises is critical to ensuring that there is liquidity in the housing finance market and to providing access to credit for borrowers.

We know that the Representation and Warranty Framework did not provide enough clarity to enable lenders to understand when Fannie Mae or Freddie Mac would exercise their remedy to require repurchase of a loan.  And, we know that this issue has contributed to lenders imposing credit overlays that drive up the cost of lending and also restrict lending to borrowers with less than perfect credit scores or with less conventional financial situations.

To address this problem, FHFA and the Enterprises have worked to revise the Framework to ensure that it provides clear rules of the road that allow lenders to manage their risk and lend throughout the Enterprises’ credit box.  These revisions are consistent with our broader efforts to place more emphasis on upfront quality control reviews and other risk management practices that provide feedback on the quality of loans delivered to the Enterprises earlier in the process. 

The first improvements to the Framework went into effect in January of 2013.  These improvements relieved lenders of representation and warranties obligations related to the underwriting of the borrower, the property or the project for loans that had clean payment histories for 36 months.  In May of this year, FHFA and the Enterprises announced additional refinements to provide greater clarity around this 36-month benchmark.  These changes included:

  • Revising the payment history requirement to allow up to two 30-day delinquencies in the first 36 months after acquisition; 
  • Providing loan level confirmations when mortgages meet the 36-month performance benchmark or pass a quality control review; and
  • Eliminating automatic repurchases when a loan’s primary mortgage insurance is rescinded.

As I committed FHFA to do when I announced these refinements in May, we have continued to engage in an ongoing process to address the issue of life-of-loan exclusions.  Life-of-loan exclusions are designed to protect Fannie Mae and Freddie Mac from instances of fraud or other significant noncompliance, and, as a result, they allow the Enterprises to require lenders to repurchase loans at any point during the term of the loan.  The current life-of-loan exclusions are open-ended and make it difficult for a lender to predict when, or if, Fannie Mae or Freddie Mac will apply one of them. 

So, we have continued to address this issue, and I can report that we have reached an agreement in principle on how to clarify and define the life-of-loan exclusions.  These changes are a significant step forward that will result in a better Representation and Warranty Framework and facilitate market liquidity without compromising the safety and soundness of the Enterprises.

First, we are more clearly defining the life-of-loan exclusions, so lenders will know what they are and when they apply to loans that have otherwise obtained repurchase relief.  These exclusions fall into six categories: 1) misrepresentations, misstatements and omissions; 2) data inaccuracies; 3) charter compliance issues; 4) first-lien priority and title matters; 5) legal compliance violations; and 6) unacceptable mortgage products. 

Second, for loans that have already earned repurchase relief, we are clarifying that only life-of-loan exclusions can trigger a repurchase under the Framework.  This is a straightforward clarification, but one that we believe will reduce confusion and risks to lenders.  

The Enterprises will provide details about the updated definitions for each life-of-loan exclusion in the coming weeks, but let me spend a minute highlighting some aspects of the refined definitions for the first two categories – misrepresentations and data inaccuracies.   

In defining both of these categories, we are setting a minimum number of loans that must be identified with misrepresentations or data inaccuracies to trigger the life-of-loan exclusion.  This approach allows the Enterprises to act when there is a pattern of misrepresentations or data inaccuracies that warrant an exclusion, but not to revoke repurchase relief they have already granted if they subsequently discover that a lender incorrectly calculated the debt-to-income ratio or loan-to-value ratio on a single loan. 

We are also adding a “significance” requirement to the misrepresentation and data inaccuracy definitions.  In order to require repurchase of a loan under the misrepresentation or data inaccuracy categories, the “significance” test requires the Enterprises to determine – based on their automated underwriting systems – that the loan would have been ineligible for purchase initially if the loan information had been accurately reported. 

Under the revised and modified Framework, the Enterprises will retain their ability to conduct quality control reviews at any time, of course, because this is essential to their risk management practices and is essential to their ongoing safety and soundness.  In addition, the Enterprises will continue to engage in transactions that sell a portion of the credit risk from new mortgage purchases to the private market.  I announced in May that we tripled the credit risk transfer goal for this year, and both Enterprises are currently on track to exceed it.

After FHFA and the Enterprises release the details shortly on these life-of-loan exclusions, there still remains more work to be done on our Representation and Warranty Framework.  On the origination side, FHFA is already focused on developing an independent dispute resolution process.  We are also identifying cure mechanisms and alternative remedies for lower-severity loan defects.  FHFA also continues to make progress on issues concerning servicing representations and warranties, and we have reached an agreement in principle on modifying compensatory fees and foreclosure timelines.  The Enterprises will announce details on these changes in the near future.  

During my tenure as Director of FHFA, we have made substantial progress by working together and I believe we can sustain this progress.  We have started to move mortgage finance back to a responsible state of normalcy – one that encourages responsible lending to creditworthy borrowers while maintaining safety and soundness of the Enterprises.  While there is still more to do, FHFA and the Enterprises have demonstrated the willingness and commitment to develop a better Representation and Warranty Framework for all parties. 

We recognize that you are essential stakeholders in this process.  As lenders, you play a central role in the overall housing market, and the work you do touches borrowers in communities across the country.  You help individuals and families become homeowners.  For many of them, this is the single largest investment they will ever make.  To fulfill both sides of our shared responsibility, I hope our actions provide sufficient certainty to enable your companies to reassess existing credit overlays and more aggressively make responsible loans available to creditworthy borrowers.  This will result in a housing market that is not only better for borrowers, but also better for the Enterprises and lenders and beneficial to our country. 

To increase access for creditworthy but lower-wealth borrowers, FHFA is also working with the Enterprises to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent.  Through these revised guidelines, we believe that the Enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account “compensating factors.”  While this is a much more narrow effort than our work on the Representation and Warranty Framework, it is yet another much needed piece to the broader access to credit puzzle.  Further details about these new guidelines will be available in the coming weeks as we continue to advance FHFA’s mission of ensuring safety, soundness and liquidity in the housing finance markets.

Now, let me turn my attention to the continuing progress we are making in the multiyear process of developing the Common Securitization Platform (CSP), which will create a shared securitization infrastructure for Fannie Mae and Freddie Mac.  As I announced in May, we are focusing on ensuring that the CSP fills the needs of Fannie Mae and Freddie Mac to carry out most of their current securitization functions.  To achieve these objectives, FHFA and the Enterprises have revised the governance structure and operating agreement for Common Securitization Solutions (CSS).  CSS is a joint venture owned by both Fannie Mae and Freddie Mac and is the corporate entity that we expect ultimately to house and operate the Common Securitization Platform. 

Under the updated structure, CSS will be governed by a four-person Board of Managers, with each Enterprise naming two members to the Board.  All Board members will have equal votes, and the Board Chair will rotate between these members. This Board structure will enable CSS to develop and operate the Common Securitization Platform in a way that best supports the Enterprises’ current securitization needs and functions.  At the same time, our teams continue to ensure that we leverage industry standards and technology where possible to make sure that the CSP will be usable by other secondary market participants in the future.  FHFA will continue to be an active participant with the Board and will provide our input as part of our ongoing oversight of the Enterprises to assure that our objectives are achieved.  

In addition to completing the structure of the Board of Managers, we are close to being able to announce the selection of a Chief Executive Officer for CSS who will report to the Board of Managers.  I anticipate that a formal announcement of the new management structure and the identity of the CEO will be made before the end of the year. 

In the meantime, FHFA and the Enterprises have also made considerable progress on the design-and-build phase of the CSP. Each Enterprise has designated staff to work on the project at the CSS location, and during 2014, this team has been developing the technology and infrastructure of the CSP platform.  FHFA announced earlier this year that we would leverage the creation of the CSP to establish a Single Security – which we believe should reduce trading disparities between Fannie Mae and Freddie Mac securities – and this team has also incorporated work on the Single Security into the development of the CSP. 

The CSP is more than a simple technology project, and it will require significant changes to each of the Enterprises’ business practices.  Fannie Mae and Freddie Mac have reorganized their staffs with business operations and information technology experts to develop the systems and processes needed to integrate with the CSP.  As this work continues, Fannie Mae and Freddie Mac staff will engage in continuous testing and will develop operating policies and procedures to ensure a smooth transition to the CSP.  FHFA, Fannie Mae, and Freddie Mac are committed to achieving a seamless CSP launch, and the actions taken so far are moving us in the right direction toward this multi-year goal.

Finally, while I don’t have sufficient time to do justice to a full discussion of this today, I do want to note before I close that FHFA recently extended the comment period for a Proposed Rule dealing with the membership requirements of the Federal Home Loan Banks.  In light of the importance of the issues surrounding the membership rule, FHFA decided to extend the initial 60-day comment period for an additional 60 days until January 12, 2015.  I know that many MBA members are also members of a Federal Home Loan Bank, and I hope you will take the opportunity to provide FHFA with your feedback and ideas on this Proposed Rule.  As I have consistently done since becoming Director of FHFA, I want to emphasize that getting input and feedback from stakeholders is a crucial part of FHFA’s policymaking process.  So give us your input, not only on our FHLB Proposed Rule, but on other policy initiatives and decisions we are evaluating.    

Thank you very much for having me here this morning and for giving me the opportunity to share my views on topics that I know are of interest and importance to all of us.  I look forward to our ongoing dialogue and to continuing our efforts to achieve our shared goals of restoring safety and soundness and liquidity to the nation’s housing finance market. ?

Please click here to view the online remarks.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally.
Website: www.safeguardproperties.com.



Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.


Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.



Sean Reddington

Sean Reddington is the new Chief Information Officer for Safeguard Properties LLC. Sean has over 15+ years of experience in Information Services Management with a strong focus on Product and Application Management. Sean is responsible for Safeguard’s technological direction, including planning, implementation and maintaining all operational systems

Sean has a proven record of accomplishment for increasing operational efficiencies, improving customer service levels, and implementing and maintaining IT initiatives to support successful business processes.  He has provided the vision and dedicated leadership for key technologies for Fortune 100 companies, and nationally recognized consulting firms including enterprise system architecture, security, desktop and database management systems. Sean possesses strong functional and system knowledge of information security, systems and software, contracts management, budgeting, human resources and legal and related regulatory compliance.

Sean joined Safeguard Properties LLC from RenPSG Inc. which is a nationally leading Philintropic Software Platform in the Fintech space. He oversaw the organization’s technological direction including planning, implementing and maintaining the best practices that align with all corporate functions. He also provided day-to-day technology operations, enterprise security, information risk and vulnerability management, audit and compliance, security awareness and training.

Prior to RenPSG, Sean worked for DMI Consulting as a Client Success Director where he guided the delivery in a multibillion-dollar Fortune 500 enterprise client account. He was responsible for all project deliveries in terms of quality, budget and timeliness and led the team to coordinate development and definition of project scope and limitations. Sean also worked for KPMG Consulting in their Microsoft Practice and Technicolor’s Ebusiness Division where he had responsibility for application development, maintenance, and support.

Sean is a graduate of Rutgers University with a Bachelor of Arts and received his Masters in International Business from Central Michigan University. He was also a commissioned officer in the United States Air Force prior to his career in the business world.


General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard and oversees the legal, human resources, training, and compliance departments. Linda’s responsibilities cover regulatory issues that impact Safeguard’s operations, risk mitigation, enterprise strategic planning, human resources and training initiatives, compliance, litigation and claims management, and mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans over 20 years, and Linda’s experience covers regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.


Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.


AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.


AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.


AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.


AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.


AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.


Assistant Vice president of Application Development

Steve Goberish

Steve Goberish, is the assistant vice president of application development for Safeguard. He is responsible for the maintenance and evolution of Safeguard’s vendor systems ensuring high-availability, security and scalability while advancing the vendor products’ capabilities and enhancing the vendor experience.

Prior to joining Safeguard, Steve was a senior technical architect and development manager at First American Title Insurance, a publicly held title insurance provider based in southern California, in addition to managing and developing applications in multiple sectors from insurance to VOIP.

Steve has a bachelor’s degree from Kent State University in Ohio.