Five Things I have learned from a year in Government

Five Things I have learned from a year in Government

Richard Green, Senior Advisor on Housing Finance in the Office of Policy Development and Research.

The things I have written below represent no one’s views other than my own.

1. The federal government is staffed by some remarkable people.

   I have been most fortunate throughout my career to work with intelligent, committed and ethical people. My time at HUD has been no different. I have had the privilege of working closely with remarkable people at HUD and at other agencies. I would name names, but worry about leaving someone out. Many people who choose to work in government could receive far more compensation doing something else, but are motivated by a desire to make people’s lives better.

   Government service is honorable service—this was a commonplace as recently as when I was in college, and remains so in places like France and Japan. We as a society should respect excellent government work more than we do right now.

2. The federal government relies too much on obsolete technology.

   We see throughout the United States examples of under-maintenance of infrastructure, from a bridge falling into the Mississippi River to tracks in metro systems catching fire. Less visible, but just as problematic, is an unwillingness to invest in modern technology systems. Within HUD, for example, the FHA program relies on systems that are driven by coding in COBOL, a mainframe (!) language developed in 1959 (!!). Because almost no one uses COBOL anymore, our university computer science departments don’t train students in its use. As COBOL programmers retire, it will become impossible to find people to maintain the system.

   On a more personal level, I was stunned to learn that my HUD PC had a 32-bit operating system in a world where 64-bit system have been around for PCs for 13 years. As a practical matter, 32 bit systems are limited in the amount of data they can analyze, whereas 64 bit systems are nearly unlimited. Many doing HUD work rely on large data sets (for example the Public Use Microsamples of the Census and the American Community Survey). The current standard for operating systems makes it relatively easy to use these datasets; the old standard requires compromises.

3. Academics teaching policy issues should spend some time in government, if for no other reason than to appreciate the importance of details.

   Before I joined HUD, I thought I was an expert on mortgage backed securities (I even wrote a book about them). Spending time with the good people of Ginnie Mae revealed to me that I really wasn’t. I did understand how to evaluate cash flows from MBS, but I didn’t really understand how Ginnie Mae operated at all. What I learned is that mortgage default risk is not the only risk that needs to be managed; issuer risk needs to be managed as well (while FHA/VA/Rural housing insures mortgages, Ginnie Mae insures the issuers of mortgage backed securities that fund mortgages). Suppose a mortgage goes into default and so a Ginnie Mae issuer needs to buy it out of a pool. That issuers needs to have enough cash on hand to survive until it receives an insurance payment from FHA/VA/Rural Housing. For non-bank lenders, this could be a problem in times of low liquidity.

   We academics are good at thinking about analytics; we are not so good at thinking about operations. Yet without good operations, analytics lose much of their value.

4. Regulators care too much about details.

   Regulations about disclosures make the point. Government sometimes worries too much about the details of disclosures and not enough about their effectiveness.

   Consider disclosures for the price of a long-term fixed rate mortgage. For consumers to be well informed about what they are getting themselves into, they need to know two numbers: total upfront cash payment, and the all-in interest rate (which might include a mortgage insurance payment). Armed with these two numbers, consumers can comparison shop in a straightforward manner.

   The first page of the new TRID closing form does this well, and lenders should absolutely be held responsible for presenting this page accurately. But the details on the following pages are essentially irrelevant to consumers and, by increasing the length of the form five-fold, make it more complicated and confusing than necessary.

5. Few people know who the third most powerful person is in the Federal Government.

   My guess is that the name Shaun Donovan is not well known outside the Beltway. But pretty much nothing gets done without the approval of the director of the Office of Management and Budget.