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Thursday, Mar 28, 2024

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Mike Williams has been at the center of one of the worst financial storms in American history as the head of Fannie Mae, the government sponsored enterprise that backs mortgages made to homeowners. He joined the Washington D.C. organization in 1991and was named chief executive shortly after the financial crisis, when Fannie Mae was losing tens of billions of dollars and facing scrutiny from every angle. He spent the next three years turning the organization around, eventually returning it to profitability before stepping away in 2012. Today, Williams, 56, is chairman and chief executive of Prospect Mortgage, a Sherman Oaks company focused almost entirely on retail mortgage lending. But don’t think that Williams has left the nation’s capital behind. He still lives in a Maryland suburb outside the capital and during the week lives in a hotel just blocks away from Prospect’s headquarters. Williams sat down with the Business Journal at his office overlooking the Sherman Oaks Galleria to talk about the financial crisis, how he got involved with Prospect and what it’s like being away from home so much. Question: So, let’s get right to it. You were CEO of Fannie Mae during the housing bust. What was that like? Answer: It was obviously very challenging. There were outstanding people at Fannie Mae who wanted to make sure we didn’t leave the company where it was at that time. I wanted to be a catalyst for changing and getting the industry moving forward. And that’s what we did. It was really a rallying cry for us to think that despite what you might hear in the media and on Capitol Hill, we felt Fannie Mae could be a force for getting housing back on track. Do you feel as though you achieved that? Three years later, we went from losing substantial sums of money to again being a profitable company. Was it complete havoc or just regular office life? A bit of both really. You still have to do your job every day, and in 2008, part of my job as chief operating officer was to make sure people were staying on task and not letting all the distractions take people off of task. It was long hours and there were many weekends. In the second half of 2008, I was in every weekend, either down at Treasury or FHFA (Federal Housing Finance Agency) working with regulators or policymakers. What was it like with all the regulators and congressional hearings? It was very different. If you would ask me one of the things I didn’t enjoy about being CEO – that would be one of the things. It was very time-consuming and took us off of task. But it was a necessary thing to do. Congress had the rights to oversight and we spent lots of time with the regulators and did what we had to do. But most of the work we did tended to be with regulators and not Congress. What part did you have to play in the Financial Crisis Inquiry Commission? Did they talk to you much? I personally did not deal with it. Obviously they interviewed a number of people from Fannie, Freddie and other aspects of the industry. But I wasn’t directly involved. The commission blamed the meltdown mostly on the housing bubble – low interest rates, easy credit, weak regulation and toxic mortgages. Who do you think? I think, quite frankly, it was a confluence of events that came together at the same time. You did have very low interest rates for an extended period of time. You had the ability to create mortgage products that you could slice and dice and sell all over the world. You had underwriting standards that loosened over time. You had an accelerating housing market that people thought was never going to go down. And the regulations in place were light. You put all this together and it creates the situation we had. I firmly believe it was the confluence of those events that made the perfect storm. Do you think Fannie and Freddie contributed to the crisis? I think everybody had a role in it. When you think about the financial system, all parties had some impact. It would be wrong for anyone to say, “Well, there was a financial crisis, but we didn’t have anything to do with it.” What role do you think Fannie and Freddie played? Hindsight is always 20/20. But if you look at what happened in that window, the credit standards had changed. And Fannie and Freddie had to figure out a way to maintain their role in the market, but deal with the lower credit standards. So there were borrowers that weren’t as strong in terms of credit, and maybe we shouldn’t have gotten involved with them. Fannie and Freddie are so-called government sponsored enterprises. Who are they serving? They were a very unique company, in that it was a government sponsored enterprise created by an act of Congress. But we had private shareholders. Now in conservatorship, all the authority and power has been given to the conservator to direct the company. Even the board of directors reports to the conservator. It’s not a government agency, not that far, but it’s not a company either. What did you think of all the shenanigans private sector lenders were getting into? Being candid, we were challenged by what was happening in the private label market. In a traditional housing market, the government sponsored enterprises should do 40 to 50 percent of the market, and various other entities would make up the 100 percent. But then in 2005 and 2006, private label was doing more than 60 percent of the market. That’s where all your really challenged credits were going. That’s where product was being sold to borrowers that should not be sold. That was the challenge. We’re still a shareholder controlled company that needs to compete, but you know you don’t want to chase that product. What do you think about all the penalties the big banks are paying? My reaction is separating what happened in 2005 and 2008 and looking at today’s market. We’ve gotten to a point where regulations may be too tight. We’re leaving a lot of people out of the market now, because you have lenders looking at the fines and asking how far they want to go. So I think we have to strike the right balance between penalizing people appropriately, but making sure we don’t scare people out of serving the market the way it should be served. You started with Fannie Mae in 1991. What was it like back then? Fannie Mae was a very different company. It was a much smaller company. More of a behind-the-scenes company. If you asked a lot of people about Fannie Mae in 1991, you’d probably get as many responses thinking it was Fannie Mae the candy company as Fannie Mae the powerhouse in the secondary market. How did it and your duties change through the years? The company grew quite significantly in the 90s to become a centerpiece of housing. I started out as a technologist to help rebuild the technology platforms in the company. What did that entail? Well, there was a real opportunity to use technology to streamline the mortgage process. So we created two of the most innovative products in the industry, which were Desktop Originator and Desktop Underwriter. We created a business around these tools that would help lenders underwrite loans. And now, Desktop Underwriter is really the industry standard. How do those programs really help the lender? It helps in a couple ways, but mostly in getting a decision. At the time, most underwriting decisions were taking a couple weeks. What Desktop Underwriter allowed was for a decision in about 24 hours. Why did you choose to leave? Those are really tough jobs. I looked at my task as being the one to turn the company around to profitability. It was clear that we were going to be profitable for the foreseeable future, so I thought it was my time to step away and have someone else come in for three years. These are tough jobs. I’d be surprised if anyone stays in the job more than three years. Why is that? It’s everything. There’s a lot of stress and a lot of responsibility. You have responsibilities to both the taxpayers and the employees. We had 6,000 employees when I took over. I had a duty to them. I had a duty to everyone we served. So why not just retire? When I stepped down, I did take some time off. Then I joined the board at Prospect and became an advisor to Sterling Partners, who owns Prospect. I took a little time off, but I felt like I had more to contribute. How did you get connected to Prospect Mortgage in the first place? That came together early in my tenure as CEO of Fannie. I was spending a lot of time with regulators and Treasury, and the CEOs of large banks. But I didn’t want to lose a handle on what was happening in the primary market, so I asked my team for some people to engage with. I struck up a nice relationship with Prospect. How did you come to join the board? When the announcement came out that I was stepping down, they reached out to me and asked to talk. I wanted to wait till I was actually out of Fannie. As soon as I was out, I gave them a ring and it went on from there. I became chairman of the board in 2012 and CEO here this summer. So I understand you didn’t permanently move to the Valley. Right now, I am working out of a hotel. I fly out on Sundays and fly back (home) on Thursdays. I’m right here at the Marriott, so I can walk to work in five minutes. I am an early riser, so I get here at 7 a.m. or so and walk back at 8 or 9. It’s really convenient. How big of a company is Prospect? We’re close to 2,500 employees. We have locations in Newton, Mass.; right outside Chicago; Irvine; Irving, Texas and more. We lend in 48 states. How does your wife handle all that time on the road? When you’re going through these things, it’s a challenge. But this is going to take a fair investment of time and my wife has been my best partner my whole life. We know what we’re investing in and what the opportunity is. It will get balanced eventually. What is that opportunity? Since I have come in, we’ve put the focus in a couple areas. The focus is a strong, retail purchase money business. Really, it’s serving people who want to buy a home. That’s our core business. The second task is to grow the company. People are going to need and want to buy homes. We will also look to grow through acquisitions. How is the business distributed? We’ve really scaled back our correspondent lending, which was not a very big part of it to begin with. It’s all retail, working directly with consumers. We’re probably about 98 percent retail. Prospect’s mission is to help people buy homes. How different is Prospect compared to working in the public sector? It’s still mortgage lending, but they’re very different. You have a smaller, more entrepreneurial company in Prospect, which is serving the consumer directly. If you think about Fannie Mae, it’s the secondary market. You’re dealing with lenders. Fannie Mae sits as a conduit between Wall Street and the primary market. Here we’re actually helping people get homes and then selling into the secondary market. So what’s your take on the residential real estate industry as it stands today? The market has been what I would call an uneven recovery. We’ve seen strong home price appreciation. That benefits people who can sell or people who have great credit and can go out and get another mortgage. But it has created challenges around supply for the entry-level borrower. Also, credit concerns for the entry-level borrower. It’s very uneven. I notice you’re on several boards. I was not on any boards when I was CEO at Fannie Mae. I just didn’t have the time. The boards give me a wealth of different experiences. The first board I joined was Children’s National. It’s one of the best children’s hospitals in the nation and serves such an important role in the care of kids in the nation’s capital. I felt like it was a wonderful place to contribute my skills and talents as an executive. My wife was already very committed to the hospital before I joined. This all doesn’t leave much space, does it? If I have time, I’ll go the gym. If I have time, I’ll read a book. But it’s really about spending time with my family. We like going to our house at the beach, particularly on the weekends when we’re all together. That’s what I enjoy doing most. It can be as simple as sitting around the living room and chatting. This interview has been edited for space and clarity.

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