Talent Drain

CPE editor-in-chief Suzann D. Silverman writes in her August 2011 From the Editor about the talent drain at the GSEs.

As this issue went to press, the debate over the federal debt ceiling raged on, coming down to the wire as congressional high-stakes battles so often do. A possible failure to strike a deal by the Aug. 2 deadline raised the specter of an unprecedented default on the nation’s debt, a spending freeze, tax hikes and severe budget cuts. Meanwhile, out of the spotlight, progress on another vital front was moving even more slowly, and while the sluggish efforts to resolve the future of Fannie Mae and Freddie Mac may pose a less imminent hazard to the country than a national default, some argue that the delay is already damaging the mortgage markets.

Indeed, as Eduardo Padilla, CEO of NorthMarq Capital and a CPE editorial advisory board member, wrote in a recent post on our From the Inside experts blog, the uncertainty has already produced a steady stream of departures from the GSEs. Head of multi-family Michael May’s departure from Freddie Mac after 28 years, effective July 15, came on the heels of a key Fannie Mae departure: that of Frank Lutz, formerly vice president for customer management in the agency’s northeast business center and head of secondary markets. An 18-year Fannie Mae veteran, Lutz joined private commercial real estate lender and servicer Berkadia Commercial Mortgage L.L.C. on July 11. Those moves were only the latest in a series that in the past couple of years has included the exits of Mitch Kiffe, Freddie Mac’s head of multi-family loan production, and Fannie Mae multi-family leader Phil Weber, in both cases after logging close to 20 years of service.

In March, following a series of key departures, Federal Housing Finance Agency director Edward DeMarco told a conference of the Global Association of Risk Professionals that something must be done to keep experienced, highly qualified executives at the GSEs. Even as the brain drain continues unchecked, however, a decision over the future of the agencies appears to be as far away as ever. Lawmakers are introducing bill after bill, each one seeming to propose bigger changes than the last. But the House Subcommittee on Capital Markets and Government-Sponsored Enterprise has yet to schedule a vote on any of them, as Dees Stribling pointed out in a recent article on cpexecutive.com. Hardly encouragement for top talent to remain in place!

What is the best solution? Suggestions range from full privatization to tighter government control. The Mortgage Bankers Association is recommending a middle course, as MBA’s chairman, Michael Berman, discussed in our May issue’s Visionary Q&A. Real estate finance veteran Shekar Narasimhan weighed the viability of a private model in a recent From the Inside blog entry.

While the GSEs’ multi-family practices are a big concern for the commercial real estate industry, they constitute only a small percentage of the agencies’ total business, and so are unlikely to drive Congress’s decisions by themselves. But the far more volatile state of the single-family market offers an even stronger incentive to seek stability, despite Washington’s reluctance to rush to judgment.

Talent retention is a sensitive area, given past criticism of GSE executive compensation levels, which far exceed those of most government agencies. But with virtually universal agreement over the importance of retaining the current level of talent, the urgency of reversing the executive exodus surely calls for action.

For specific commentary on this subject, log on to test.cpexecutive.com/finance/mortgagebanking/changes-at-the-gses.

This column first appeared in the August 2011 issue of Commercial Property Executive.