The nice people I worked with at HUD asked me to write a short piece reflecting on my year there.
Five Things I have learned from a year in Government (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 OMB director.
Five Things I have learned from a year in Government (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 OMB director.
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