Henry Paulson Worries Lack of GSE Reform Could Mean Another Crisis

On February 5, Mortgage Daily published an article titled Henry Paulson Worries About Another Crisis.

Henry Paulson Worries About Another Crisis

Lack of GSE reform at heart of concerns

Henry M. Paulson Jr., the financial firefighter stationed at the epicenter of the biggest financial crisis since the Great Depression, worries that the nation is headed for another crisis because political leaders failed to learn critical lessons from the last one in 2008.

In an exclusive interview with The Washington Times, Mr. Paulson, former President George W. Bush’s last secretary of the Treasury, said the most serious lapse may be Congress’ failure to reform mortgage giants Fannie Mae and Freddie Mac in a way that would revive the private market for mortgages, which has all but disappeared since the crisis.

He insisted that vigorous, bipartisan action is needed to ensure that housing never again turns from the American dream into an American nightmare for middle-class homeowners.

“We don’t want to have to replay this movie. We need to learn from our mistakes and clean up our messes,” he said, emphasizing that worries about Washington’s failure to reform Fannie and Freddie are what prompted him to make a documentary being released in theaters this week that chronicles his central role in the government response to the monumental financial collapse.

He points out that the mortgage giants owned or guaranteed about half of the nation’s mortgages before the crisis but have dramatically increased their dominance ever since. Along with the Federal Housing Administration, they guarantee nearly every new mortgage in the U.S., which enables the government to essentially dictate the price and terms of home financing and suffocate any hope that the market will return to normal, he said.

“That’s ultimately a recipe for disaster,” he said, adding that reforming the mortgage guarantors — which remain in a government custodianship that he engineered in September 2008 — will be much harder now that they are profitable again and their profits are being transferred to the Treasury each quarter to help pay down bloated U.S. budget deficits.

Mr. Paulson is also concerned that the nation’s biggest Wall Street firms and megabanks remain “too big to fail” and could cause another financial disaster, although he said Congress and regulators have made progress reining them in with measures enacted in the Dodd-Frank banking reform law.

‘Mr. Bailout’
A figure reviled in some circles, Mr. Paulson acknowledges his own role in making those banks bigger by arranging during the height of the financial crisis the merger of such giants as JPMorgan and Bear Stearns, Bank of America and Merrill Lynch, all in a desperate effort to prevent the kind of nosedive into financial chaos that ultimately happened anyway with the spectacular failure and bankruptcy of Lehman Brothers in September 2008.

He jokingly suggests that he may be best remembered as “Mr. Bailout” for having engineered taxpayer-funded rescues for a long list of American financial and corporate behemoths in the 10 months before President Bush left office in January 2009, including Fannie and Freddie, General Motors, BofA, American International Group and Citibank. But he defends the moves as “absolutely necessary” and credits them with preventing an even bigger economic catastrophe that could have driven U.S. unemployment to 25 percent instead of the 10 percent level where it topped out in 2009.

Like the Americans who were traumatized by the crisis and ensuing deep recession, which threw more than 8 million people out of work and millions out of their homes, Mr. Paulson keeps returning to the subject and mulling over what happened, seeking to find those kernels of truth that reveal the meaning.

His latest effort, the documentary collaboration between Bloomberg BusinessWeek Films and award-winning director Joe Berlinger, recounts the dramatic and fast-paced events as the debacle deepened and Mr. Paulson led the effort to soften and prevent the nation’s head-spinning downward economic spiral.

As Hank: Five Years From the Brink vividly recalls, Mr. Paulson repeatedly confronted and coerced the nation’s top bank chieftains as one after another of the megabanks was engulfed by the financial superstorm that ultimately erased more than half the value of the U.S. stock market and completely wiped out large parts of the U.S. bond market.

He fears that many of those banks, which have grown even larger since the crisis, with the top five owning nearly half of all U.S. banking assets, remain “too big to fail,” threatening to drag the nation and taxpayers into future bailouts if their failures threaten to bring down the financial system.

Regulators are moving in the right direction following Dodd-Frank mandates requiring the banks to have big capital cushions, ample liquidity and other safeguards, he said. “The biggest banks are better managed and much better regulated now,” but he still worries that the nation has not gone far enough to defuse a crisis.

“It’s obviously unacceptable for any bank to be too big to fail,” he said. Regulators still need to reform the shadowy “repo” market where big banks get much of their funding, and ensure in laying out procedures for liquidating large banks in the future that the banks are not allowed to continue operating in the same form that led them to the brink of collapse.

‘Horror Show’
Still, while the banking leviathans continue to pose risk to the system, he said, it is the question of Fannie and Freddie that most concerns him. Political leaders and the public have not focused as much on their critical role in the housing debacle, perhaps because he stepped in and took control over the goliaths before a crisis occurred, in what he views as his single biggest move to stem the crisis.

“We took action before they started to unravel, before there was a failed auction. The public never saw that horror show,” he said. “People never focused on what their failure or near-failure would have done,” he said, suggesting the ensuing crisis would have been much bigger than the financial collapse in the wake of the Lehman bankruptcy. “They were collectively nine times bigger than Lehman Brothers” and the massive damage to the housing and mortgage markets could have been many times worse.

“It perplexes me that nothing has been done” and both parties seem content to just allow the housing market to drift through yet another era of government dependence and dominance that potentially is creating even bigger market distortions, he said. “Every financial crisis has its roots in flawed government policies that lead to excesses in the markets that build up and build up, and then you get a bubble and it bursts.”

As with so much of Washington, gridlock and powerful vested interests in the housing industry have frozen housing policy, he said.

Deep disagreements over the role Fannie and Freddie played in the crisis seems to prevent any compromise over their future role.

Conservative Republicans blame Fannie and Freddie for generating the crisis by encouraging lenders to make easy-money loans to increase homeownership among disadvantaged groups and borrowers.

Mr. Paulson called that view “oversimplification,” noting that unethical mortgage brokers and dealers on Wall Street who knowingly sold risky instruments to unwary borrowers and investors were as much at fault, while homeowners contributed to the crisis by getting too deeply into debt as they sought to finance unsustainable lifestyles and spending habits they adopted during the bubble years.

“I don’t like oversimplifications. The crisis we dealt with was a once-in-75-year crisis where excesses had been building for a long time.” Among the problems that contributed to the crisis was the “incredible complexity” of the subprime mortgage securities engineered by Wall Street, which ultimately blew up and triggered the downward spiral in financial markets.

The blame within the government rests not just with the fair-housing mandates given to Fannie and Freddie, but also with government policies in place since World War II that include generous tax deductions for homeowners and low down-payment lending programs for farmers and veterans, all of which have encouraged homeownership at almost any cost and heavily favor borrowing over saving, he said.

“It doesn’t make sense for everybody to own a home,” he said. “These policies encouraged Americans to put everything in their homes” and get over their heads in debt, yet they succeeded only in nudging up the homeownership rate from around 64 percent before the housing bubble to 69 percent when it peaked, he said.

Congress and the administration need to find a compromise that realistically addresses the role Fannie and Freddie played in the crisis and prevents them from making the same mistakes in the future, while paring back their role in the market to allow private lending to re-emerge, he said.

Bipartisan legislation drafted by Sen. Bob Corker, Tennessee Republican, and Sen. Mark R. Warner, Virginia Democrat, which preserves a residual role for the government providing a last-resort backstop in the mortgage market, would be a good starting point, he said.

“I have no doubt that if you do this properly, you’ll have a private market” for mortgages again, he said.

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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.