The Fate of Fannie and Freddie and the Importance of GSE Reform

On February 5, DSNews published an article titled The Fate of Fannie and Freddie and the Importance of GSE Reform.

The Fate of Fannie and Freddie and the Importance of GSE Reform

Congress chartered Fannie Mae in 1938 as part of the New Deal and Freddie Mac in 1970. Although they were chartered by the federal government, the corporations were owned by private shareholders for the purpose of making homeownership affordable for lower- and middle-class and other underserved Americans.

In theory, GSEs purchase mortgages from lenders, guarantee them, and package them into mortgage-backed securities, which they either keep as investments or sell to institutional investors. Lenders are able to increase liquidity and lending potential by selling these loans to the GSEs, which in turn should increase availability of credit.

In practice, they have dominated the mortgage finance market, thus promoting homeownership. This domination is attributed to the ability of the GSEs to buy mortgages by borrowing at below-market rates based on the illusion of a government guarantee.

In the 1990s, they implemented housing initiatives to lenders to offer low-down-payment mortgages to low- and middle-income families and to loosen underwriting guidelines, both factors which contributed to the housing bubble.

In the early 2000s, Wall Street increased quantity of loans—often non-GSE, riskier loans that were securitized, another factor contributing to the bubble. By 2005, the GSEs, which were losing market share, loosened underwriting guidelines, taking on more risk without an increase in capital reserves.

As the bubble began bursting in 2008, some in Congress wanted the GSEs to take on more risk, but U.S. Treasury officials, alarmed by continued devaluation of GSE loan portfolios, GSE weak capital reserves, potential investor sell-off, and impact on global markets—against the GSEs, with their weak capital reserves—persuaded the GSEs to consent to conservatorship in September 2008.

The Housing and Economic Recovery Act (HERA), enacted in July 2008, created the Federal Housing Finance Agency (FHFA), the GSEs’ conservator since 2008.

Fannie and Freddie continue to dominate the secondary mortgage market: They currently have more than $5.6 trillion in obligations outstanding, an amount nearly 40 percent the size of the entire U.S. economy, and they owned or guaranteed about 61 percent of all new residential mortgage loans in the United States in 2012. Contrasted with private mortgage origination, only $5.2 billion in residential mortgage-backed securities have been issued without government support in the same time period.

Importance of GSE Reform
Freddie and Fannie received a $188 billion bailout from Treasury and had paid $146 billion back by September 2013, with two-thirds paid back this year. They continue to be profitable, while having increased lender fees and tightened underwriting guidelines, and, along with the Federal Housing Administration (FHA), which guarantees reverse mortgages to seniors, insure nearly 90 percent of all residential mortgages.

The costs beyond the direct infusion of the $188 billion bailout are much higher: an estimated $7.4 trillion loss in real property equity, for one.

The GSE “privatized gains and socialized losses” model remains firmly entrenched in housing, and, along with the mortgage-interest federal tax deduction, has been described as having evolved into an entitlement.

Both ends of our political spectrum agree GSE reform is required to minimize risk in U.S. housing markets. Methodology, however, varies depending upon the perspective of the GSEs, which promoted homeownership by loosening standards at the urging of politicians, or private investment companies, which securitized and sold riskier loans.

Suggested Actions
Sens. Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) introduced a bill this past June that would replace the GSEs with federal reinsurance for mortgage-backed securities, similar to FDIC-insured bank deposits. This is thought to encourage private investors to take first losses on mortgages, knowing there is a backstop in economic downturns. President Obama has endorsed this approach in theory.

A government insurance program could assuage the concerns of consumer and trade groups, who prefer the status quo about availability of mortgages, and the ability and promotion of prospective owners to buy homes, the mission of Fannie and Freddie.

Most legal and residential mortgage banking and related professionals and industries advocate a thoughtful approach to reform, which would include some type of government guarantee or insurance. The U.S. housing market includes and affects untold numbers of homeowners and home occupants, who are served by a vast industry of professionals—all of whom value the intrinsic permanency of homeownership and solidarity found in our country based on our private real estate market.

While larger lenders may not like the competition of the GSEs’ rates, they benefit, as smaller lenders do, by the liquidity and pseudo-government guarantee offered by the GSEs. Smaller lenders do not want the GSEs to wind down because they cannot compete with the liquidity of the large banks.

On the other end of the spectrum are advocates of a free market system, with the government almost completely out of housing finance, except for, say, FHA/HUD first-time low- to middle-income buyer mortgages. They propose winding down the GSEs while legislating the definition of a prime loan (could the Consumer Financial Protection Bureau’s qualified mortgage definition be the foundation for this?) that would be the standard for a private finance market.

Free market advocates note that the stated purpose of the GSEs, to encourage and expand home ownership, has not been substantially accomplished. Since 1998, when the GSEs increased efforts, ownership only increased from 66 percent to 70 percent, and it is now back down to 1998 levels. When the economic and human expense is added to this paltry result, the GSEs are not sustainable, though Fannie vows to remain viable. These advocates point to the Western European housing markets, which operate efficiently with very little government involvement, but with respectable percentages of homeownership.

Almost everyone agrees that something needs to be done with the GSEs, and almost everyone recognizes that the “something” will be a complex undertaking in our housing and financial markets which are enmeshed with the GSEs, but we must be up to this task, we must be thoughtful about reform, avoid unintended consequences, and strike a middle ground between growing a private mortgage market and providing a government backstop.

On the Horizon
While there were housing reform hearings on Capitol Hill during the Congressional fall session, the topic is not on the House agenda and therefore is not a legislative focus compared to the current highlight on the debt ceiling and the Affordable Care Act.

Hill insiders predict substantive GSE reform would take many years. Financial services company analysts point out the current profitability of the GSEs, and as noted previously, community and large banks like the advantages they receive, in different ways, from the GSEs’ liquidity.

In fact, some hedge funds have heavily invested in the GSEs’ preferred stock, and two of them, Perry Capital and Fairholme Funds, have sued the United States for devaluation of the stock based upon Treasury changes in agreements with the GSEs.

The same holding pattern exists for the Protecting American Taxpayers and Homeowners (PATH) Act, introduced in the House of Representatives bill rolled out in July, which seeks to return the FHA’s market share to first-time, lower-income buyers. The best approach now or in future Congressional sessions is to recognize the interplay between GSE and FHA reform and the market shift between them due to reform.

Housing market reform is complex, topical, and looming on the horizon, if lessons from our recent history are heeded. Stay tuned for an always evolving and important dialogue on our nation’s housing market.

Please click here to view the online article.

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:



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.