David Stevens arrived as a commissioner at the Federal Housing Administration (FHA) in 2009 vowing to restore financial discipline to a government housing body facing the stresses of a post-crash world.
A former mortgage banker himself, Stevens, now 54, bolstered the agency's finances and pursued alleged wrongdoing at nonbank lenders including Berkshire Hathaway and Goldman Sachs affiliates.
One group the FHA did not feud with during Stevens' tenure: top industry players, such as Bank of America Corp. and Wells Fargo. A collection of emails between Stevens and the Mortgage Bankers Association (MBA) may help explain why.
The communications reveal that while at the FHA, Stevens enjoyed close social and professional ties with the mortgage industry's main lobby — a group whose members originated roughly $300 billion in FHA-guaranteed loans last year.
Stevens turned to the MBA for policy memos, was copied on its internal lobbying strategy debates and asked its boss at the time to devise "an excuse" for him to attend one of its conferences.
The emails and Stevens' calendar, obtained from the Department of Housing and Urban Development (HUD) under a Freedom of Information Act request, suggest that the sort of close ties between regulators and the regulated that have been blamed for contributing to the housing crash were alive and well at Stevens' FHA. This, despite the fact that shoddy underwriting practices among MBA members have caused mass defaults and hundreds of billions of dollars in government-guaranteed losses.
Stevens disputes the notion that he was overly close to the MBA. He cited what he calls an unprecedented number of FHA administrative actions during the housing collapse and his own repeated statements that the industry needed to accept responsibility for its failings. Stevens also insisted, along with an MBA spokesman, that he maintained an appropriate relationship with the MBA while at the FHA.
"I'll be the social secretary"
As a longtime former mortgage banker who worked at Long & Foster, Wells Fargo and Freddie Mac, Stevens may have fit right in at events like an October 2009 San Diego mixer where the Beach Boys performed or a June 2010 event in Puerto Rico. For the latter event, Stevens received an email from John Courson, his predecessor as MBA boss.
"Marcia and I were thinking about bailing out after Friday's morning session and heading to Old San Juan for lunch and browsing and returning for the luau," Courson wrote in a note inviting Stevens to come along. Stevens tells American Banker he turned down the offer.
"I had to clear everything with [HUD's ethics division] and make sure any event was widely attended," he says.
In other instances, Stevens was the one making the invitations. "Let me know if there are eny [sic] Sunday evening events that would be fun to connect at," Stevens wrote Courson on May 2, 2010, shortly before an MBA conference in New York.
"I will be the social secretary for [Stevens' wife] Mary and you on Sunday evening in New York," Courson responded.
Steven also wrote Courson in March 2010 saying he was "Looking for an excuse to attend the MBA presidents conference" to be held at Barton Springs Resort & Spa in Austin, Texas. "Let me know if there is any role there." Courson answered: "will get back to you with specific ideas." Stevens ultimately passed up the event and says there was nothing inappropriate about asking for "an excuse" to attend the MBA presidents conference, given that the MBA's events "bring together senior executives from across the real estate finance world."
Can You Write a Memo?
Stevens' coziness with Courson extended to the policy arena. In a series of emails written in May 2010, Stevens received a note from a Treasury official asking why the FHA was opposing the Merkley mortgage amendment, which sought to prohibit banks from paying mortgage brokers bonuses for selling borrowers above-market interest rate loans. Such "yield-spread premium" payments were reviled by consumer advocates for encouraging brokers to trick borrowers into taking out high-cost loans. They were also defended by the MBA, whose members had the potential to earn additional profits.
"We understand you have concerns" about the Merkley amendment, senior Treasury attorney Dan Sokolov wrote Stevens in May 2010. "We don't have a good handle on what they are."
Stevens forwarded the note to MBA boss Courson, along with a request for the MBA's take. "Cab [sic] one of your people write a short memo to me on this?" Stevens asked. "We are on it," Courson replied.
"Given its role facilitating housing and housing finance, FHA is a critical bridge between other policymakers and the industry," Stevens said in response to a question about why he forwarded the Treasury official's email on the Merkley Amendment directly to Courson. Stevens says he also talked to academics, nonprofit officials and other nonindustry groups. "I wanted the entire picture," Stevens said.
Other emails suggest MBA officials were under the impression it was permissable to let Stevens in on informal discussions on lobbying strategy, including those that involved how the FHA could be of use to the industry lobby.
In October 2009, a housing consultant, Howard Glaser, alerted the MBA to a surprise push by the National Association of Realtors to block the Home Valuation Code of Conduct, which was designed to eliminate appraisal abuse.
"We need to pull out all the stops to make sure this [effort to block the legislation] does not pass," wrote an executive member of the MBA and title insurer First American, who was included on the email. An MBA lobbyist, Steve O'Connor, agreed. "We need to scramble on this one," he said. "There is an FHA play here as well, so we think about a bank shot where they [FHA officials} weigh in and oppose the moratorium if it screws up their risk-management plans."
After further internal MBA discussions about which members of Congress might support the NAR's opposing position, Courson forwarded the entire email chain to Stevens. The NAR was defeated.
Stevens rejects any suggestion that the MBA's members might have benefited from his industry ties, saying he took enforcement action against more than 2,000 lenders, raised the insurance premiums FHA lenders pay and participated in a fraud task force with HUD's inspector general.
"Any implication that I was too close with the industry during any part of my tenure at HUD ignores all facts," Stevens wrote.
Dave Chapelle, an industry consultant for Potomac Partners and a former FHA executive, also cited Stevens' increase in insurance premiums as a sign of his independence. "If he wanted to be cozy with the industry he would not have done it," Chapelle said."The right fit to lead MBA."
In December, Stevens says he told HUD Secretary Shawn Donovan he planned to leave the administration and "immediately began recusing myself from issues that could have presented a conflict."
The MBA's communications with Stevens' HUD.gov email account ground to a halt at that time, records show, and there are no emails pertaining to his recruitment. Stevens says he was planning to take a job in New York at the time and only received a call from the MBA in late February. His calendar lists a dinner with MBA chairman Michael Berman on March 2. Stevens received a "last minute" offer four days later, he said.
Stevens says he alerted the agency about the talks and was told there were no ethics concerns because the MBA is not regulated by HUD (though its members are). Stevens wrote the ethics division on March 2, "I will not participate in any particular matter in which Mortgage Bankers Association is or represents a party."
Following through on that statement appears to have been troublesome, given the FHA's broad impact on the MBA's membership. One week after he wrote to the ethics division, Stevens' calendar lists a meeting with MBA officials to discuss housing finance reform. A day later, on March 10, he was booked to discuss loan officer pay. On March 11 he had a scheduled call on foreclosures with deputy secretaries of other government agencies.
Despite such meetings, Stevens' contacts with the mortgage industry were appropriate, HUD said in a statement to American Banker. His industry background was "part of what made him particularly well qualified for the job of FHA commissioner," an agency spokesman wrote.
"A chance to help"
On March 10, The Wall Street Journal reported that Stevens was resigning to return to the private sector. Stevens told reporters that he had not accepted a job offer, even though eight days earlier he had written the ethics division to recuse himself from MBA business.
Stevens and HUD say he cut off all contact with the MBA on March 15, when he formally told HUD he was taking the MBA job and the MBA announced the news to the press.
As FHA commissioner, Stevens earned $155,000 a year. In the most recent year for which MBA CEO compensation is available, the post paid $1.3 million.
"Everybody was surprised that I didn't go back to the industry," Stevens said. "This was a chance to help and I wouldn't have to move. I could stay in Washington … I thought there needed to be a voice of reason with integrity and responsibility on the mortgage bankers side," he says. "There's a way for the mortgage bankers to do what it needs to do to establish confidence and show that we care about the state of the industry."
A Five-Bedroom Colonial
Stevens was FHA commissioner until the end of March, but his calendar began winding down after his move became official. Appointments began filling with events like meetings with HUD human resources to discuss his separation package and a series of goodbye parties.
The departing commissioner was also in the market for a house. On March 22 he booked a tour of a five-bedroom home in a stately part of northwest Washington D.C., which he bought in June for $1,899,000, District of Columbia records show.
Because of restrictions on lobbying, Stevens is barred from contacting his former government colleagues for at least a year. The MBA doesn't expect that its relationship with the FHA will be different than it was when Stevens or his predecessors were commissioners, however.
"MBA has always had close relationships with officials at HUD and with FHA in particular," said MBA spokesman John Mechem. "Given that lenders and the FHA work hand in hand, it's to be expected that the national trade association representing mortgage lenders would have a close relationship with FHA, and vice versa."