FHFA Prepared Remarks of Melvin Watt

On March 5, the Federal Housing Finance Agency (FHFA) released the prepared remarks of Melvin L. Watt at the Goldman Sachs Housing Finance Conference.

Prepared Remarks of Melvin L. Watt Director FHFA at the Goldman Sachs Housing Finance Conference

Remarks as Prepared for Delivery
Melvin L. Watt, Director
Federal Housing Finance Agency

Goldman Sachs Housing Finance Conference
New York, NY

It is a pleasure to be here with you this afternoon. Thank you for the opportunity to discuss the work underway at the Federal Housing Finance Agency (FHFA) to fulfill our statutory mandates, which include ensuring the safety and soundness of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and ensuring liquidity in the housing finance markets.

It feels to me like I’ve been on the job as Director of the Federal Housing Finance Agency for a lot longer than one year. It probably feels that way to me because we’ve been really busy this past year, and I believe our work is moving things in the right direction. But, I also know we have a lot more to do. My remarks today focus on Fannie Mae and Freddie Mac (the Enterprises) and on some of the challenges in the housing finance market, how we’ve approached confronting some of those challenges in my first year on the job, and how we plan to approach them going forward.

The annual Conservatorship Scorecard is FHFA’s mechanism for laying out our priorities and expectations for the Enterprises and our means of providing transparency to the public about what we expect. While it took us a lot longer to release the 2014 Scorecard, FHFA released the 2015 Scorecard early in January of this year. The 2015 Scorecard continues to be structured around the same general goals we had in 2014:  MaintainReduce, and Build.

Under our first major goal, Maintain, there are no surprises in 2015. On the single-family side, we simply want to continue two objectives:

  • Maintaining, promoting and expanding access to credit in a safe and sound manner; and
  • Continuing to improve the Enterprises’ loss mitigation and foreclosure prevention activities.

On the first objective, FHFA and the Enterprises made a lot of progress last year on improving access to credit. We did this by updating and clarifying the Representation and Warranty Framework used by the Enterprises to ensure that the loans they purchase meet their underwriting guidelines. We also updated the foreclosure timeline and compensatory fee methodology under which mortgage servicers are held accountable for meeting loss mitigation and foreclosure process standards. We believe that providing lenders greater certainty about when and under what circumstances they would be required to repurchase or take loans back onto their books and providing servicers updated guidelines about when they would be required to pay compensatory fees has moved the availability of mortgage credit in the right direction. We expect the Enterprises to continue these efforts in 2015.

We’ve also turned our attention to another important effort, updating and enhancing the Enterprises’ counterparty standards for mortgage servicers. Changes in the servicing industry have resulted in the growth of nonbank servicers and increased levels of mortgage servicing transfers. While FHFA and the Enterprises do not regulate servicers, it is extremely important for the Enterprises to clearly define and communicate their Seller/Servicer eligibility requirements.

To this end, FHFA recently released proposed minimum financial eligibility standards the Enterprises will require servicers to meet. The standards set minimum net worth requirements for all servicers who work with the Enterprises, as well as capital and liquidity requirements targeted specifically for nonbank servicers.

Strengthened Enterprise servicer counterparty standards will help improve access to credit by reducing market uncertainty about Enterprise expectations for mortgage servicer counterparties. Consistent with our normal process, FHFA is collecting extensive stakeholder feedback on the proposed guidelines, and we expect to be able to finalize these requirements in the second quarter of this year and have them become effective six months after they are finalized.
Under the Maintain portion of the Scorecard, we also want the Enterprises to continue to improve their loss mitigation and foreclosure prevention activities in 2015. Again, we made progress in 2014, and – in a number of ways – the housing and foreclosure crisis has evolved. However, meeting mortgage obligations and staying one-step ahead of foreclosure continues at crisis levels for many individuals and families across the country and in many neighborhoods. There are still many borrowers who have been delinquent on their loans for extended periods of time – sometimes more than two or three years. In fact, over half of all delinquent loans held or guaranteed by the Enterprises are at least one-year delinquent. As of the third quarter of last year, this subset of delinquent loans totaled almost 300,000 loans with an unpaid principal balance of approximately $54 billion.

Consequently, we have directed the Enterprises to make significant efforts in 2015 to reduce the number of severely delinquent loans they hold and to do so in a responsible way. The sale of non-performing loans (NPLs) is one of the key tools we believe the Enterprises can use to meet this Scorecard priority. By engaging in NPL sales, the Enterprises are able to transfer pools of severely delinquent loans to new buyers and servicers. When done in a responsible way, these new buyers and servicers will have the capacity, self-interest and track records to successfully provide foreclosure alternatives to borrowers who are seriously delinquent. While NPL sales will not prevent foreclosures in every instance, we do expect NPL sales to produce better outcomes for borrowers, on the whole, than the status quo.

In recent months, FHFA has been vigorously working to define and test requirements for future NPL sales that will set the right balance of supporting positive outcomes for borrowers and neighborhoods while also supporting positive financial outcomes for the Enterprises. Standards that encourage successful foreclosure alternatives – including loan modifications, short sales and deeds in lieu of foreclosure – will not only be better for borrowers but will also yield better economic outcomes for the Enterprises and for taxpayers compared to keeping seriously delinquent and non-performing loans on the Enterprises’ books.

Earlier this week, FHFA released new requirements for future NPL sales by Freddie Mac and Fannie Mae. These requirements build on FHFA’s review of two pilot NPL transactions conducted by Freddie Mac in recent months. These transactions involved approximately $1 billion in loans with average delinquency rates of more than two and a half years.

The new requirements will necessitate substantial outreach by the Enterprises to identify bidders who are willing and able to meet established modification and loss mitigation standards, which include evaluating borrowers who have pre-2009 loans for the alternatives to foreclosure offered through the U.S. Department of the Treasury’s Making Home Affordable program and having foreclosure as the last alternative in the loss mitigation waterfall. We are also requiring winning bidders to track and report what happens with borrowers so FHFA and the Enterprises can monitor and document the success of the program.

Our second 2015 Scorecard objective is to continue to Reduce risks to the taxpayers by increasing the role of private capital in the mortgage market. 2014 was a breakthrough year for the Enterprises’ single-family credit risk transfer program. What began as a handful of transactions during the second half of 2013 has evolved into programs of regular debt issuances that have gained broad market acceptance. These programs are known as STACR for Freddie Mac and CAS for Fannie Mae. The ability and willingness of the Enterprises to provide historical loan performance data has greatly enhanced the ability of the market to achieve pricing that both serves the interests of investors and allows the Enterprises to meet their financial objectives.

FHFA tripled the credit risk transfer requirement in the 2014 Scorecard compared to 2013, requiring each Enterprise to transfer a portion of credit risk on single-family mortgages with an unpaid principal balance of $90 billion compared to the $30 billion requirement in 2013. Both Fannie Mae and Freddie Mac significantly surpassed last year’s benchmark by executing credit risk transfer transactions on mortgages with a combined UPB of over $300 billion.

The Enterprises also made significant progress last year in refining their risk transfer transactions. In May 2014, Fannie Mae completed the first transaction providing credit protection on mortgages with loan-to-value ratios from 80 percent to 97 percent, and Freddie Mac completed its first transaction with LTVs between 80 to 95 percent in August 2014. Prior to that, both Enterprises had conducted transactions only for loans with LTVs between 60 to 80 percent.

In 2014, the Enterprises also offered transactions that targeted private capital in the insurance and reinsurance markets. Freddie Mac completed three reinsurance deals, and Fannie Mae completed one.

  • Building on this success, FHFA again increased the credit risk transfer requirement in the Enterprises’ 2015 Scorecard. Subject to market conditions, we expect Fannie Mae to complete transactions on single-family mortgages with an overall UPB of $150 billion, and Freddie Mac to complete transactions with an overall UPB of $120 billion. The 2015 Scorecard also imposes some different obligations in the risk transfer space:
  • First, we also want the Enterprises to continue to refine and innovate in their existing credit risk transfer structures. For example, Freddie Mac completed a STACR transaction earlier this year that transferred the first loss piece of credit risk to investors. This differs from other structured debt issuances where the Enterprises have held on to the first loss while transferring intermediate layers of credit risk to investors.
  • Second, we want the Enterprises to continue to develop methods of conducting credit risk transfers that involve working with different kinds of market participants. We think there is significant value in exploring different approaches and investors, because it could provide the Enterprises with a greater ability to transfer credit risk during changing market conditions.
  • Finally, we also want the Enterprises to increase their attention to diversity and inclusion in risk transfer transactions by engaging with minority-, women-, and disabled-owned businesses.

You can see that there should be multiple opportunities for private sector involvement in the risk transfer space in 2015. So, I hope I can count on many of you and the companies and investors you represent to take advantage of these opportunities to put more private capital to work. We welcome your input on how we can continue to make this happen and be mutually beneficial to you, the Enterprises and taxpayers.

Finally, let me spend the balance of my time talking about the Build component of the Enterprises’ 2015 Scorecard in which our objective is to continue to make progress on building a new securitization infrastructure for the Enterprises that is adaptable for use by other secondary market participants in the future. This means continuing our progress on the Common Securitization Platform (CSP) and on moving toward a Single Security. Both of these multi-year initiatives are highly interrelated. While we are making significant strides on both the CSP and the Single Security, I’d like to focus my comments today on the Single Security.

Last year was the first time that FHFA included the development of a Single Security as part of our conservatorship priorities for the Enterprises. Our objective in adding this multi-year project to the agenda is to improve overall liquidity in the market, which will not only be beneficial to the Enterprises and other market participants, but will also benefit borrowers. It would also benefit taxpayers by reducing Freddie Mac’s costs that result from the trading disparity between Freddie and Fannie’s securities.

During the past year, FHFA and the Enterprises have been engaged in a transparent process about a Single Security structure. To get feedback from stakeholders, FHFA released a Request for Input in August of 2014 in which we proposed certain features, disclosures, and processes to define how a Single Security could operate and how the transition to this new structure could take place. Since August, FHFA has been reviewing the responses we received and continuing conversations with stakeholders – including investors, trade associations, lenders, and regulators – about FHFA’s proposal and related issues.

As we move the process forward in 2015, a high priority will be to provide increasing levels of detail about the Single Security. In the feedback we received in response to our Request for Input and in our conversations with stakeholders, we heard the strong message that additional information and greater clarity is needed about security features and disclosure standards, about transitioning legacy securities to the Single Security, about the counterparty status of commingled re-securitizations, and about a range of other potential issues.

We heard these concerns, and we will provide more details in an update report that we expect to release in the second quarter of 2015. While the Single Security remains a multi-year initiative, we believe this update report will be a significant milestone in defining the structure and processes necessary to successfully transition to a Single Security in the future.
FHFA has also required the Enterprises to develop preliminary plans about how to implement the Single Security in the market. We expect this to be a particular focus for the Enterprises during the second half of the year. Just as we have approached the rest of our efforts on the Single Security, these implementation plans will not be developed in a vacuum. Instead, FHFA and the Enterprises will gather feedback and input from market participants as these plans develop and evolve.

What I have tried to do today is to provide some highlights just about the priorities included in the 2015 Scorecard. Of course, this just “scratches the surface” of the work we are doing at FHFA as regulator and conservator of Fannie Mae and Freddie Mac and as regulator of the 12 (soon to be 11) Federal Home Loan Banks. I’d be happy to take questions or comments about the things I have spoken about or about the other work we are doing. Thank you for the invitation to be with you today, and I look forward to your questions.
Corinne Russell (202) 649-303??2 / ? Stefanie Johnson (202) 649-3030

Please click here to view the prepared remarks online.

About Safeguard 
Safeguard Properties is the mortgage field services industry leader, preserving vacant and foreclosed properties across the U.S., Puerto Rico, Virgin Islands and Guam. Founded in 1990 by Robert Klein and headquartered in Cleveland, Ohio, Safeguard provides the highest quality service to our clients by leveraging innovative technologies and proactively developing industry best practices and quality control procedures. Consistent with Safeguard’s values and mission, we are an active supporter of hundreds of charitable efforts across the country. Annually, Safeguard gives back to communities in partnership with our employees, vendors and clients. We also are dedicated to working with community leaders and officials to eliminate blight and stabilize neighborhoods. Safeguard is dedicated to preserving today and protecting tomorrow.  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.