In what some are calling a “major blow”, Craig Phillips, the Senior Advisor to Treasury Secretary Mnuchin, is reportedly leaving the department and returning to the private Sector.
The New York Times broke the story today, surprising stakeholders, industry analysts, and other journalists with the news. As I was quoted as saying in the NYT story: “’He’s critically important,’ said David Stevens, the former chief executive of the Mortgage Bankers Association. ‘He knows this stuff inside and out, and he’s in a real power seat.’”
Craig is one of the few in the administration with deep knowledge of the mortgage banking industry, capital markets, and the secondary market. In his time in the administration, he has produced several papers focusing on a variety of key policy fronts related to real estate finance, he has met frequently with industry experts to discuss key issues, and was viewed as a pragmatic person who would be critical to insuring a balanced outcome in the GSE reform process.
With Craig leaving, and with so many empty seats in the Treasury Department, the key question now is who will provide the direction and leadership on GSE reform steps? Mark Calabria, the new Director of the FHFA, plays an obvious role. But Mark is an independent Director and not part of the Trump Administration’s cabinet level agencies who are going to be key to getting the long-term solution in play. HUD recently lost Adolfo Marzol to the FHFA and also suffers from a lack of depth in this area. Others like Michael Bright who left earlier only add to the deficit of industry knowledge.
What happens next is the question. While the GSE paper as directed by the President is expected to still move forward, the real area of focus will be who drives the decisions on next steps. With things like the government guaranty, the size of the single and multi-family footprints, and commitments to affordable housing all hanging in the balance, the loss of Craig Phillips is not a positive move for most industry stakeholders.
The NEC has Larry Kudlow as its Director and Andrew Olmem, a former Senate Banking Committee staffer to bring some weight to the debate. Treasury has some more junior members like Jonathan McKernan, the former lead staffer to Senator Corker on GSE reform. Others like Mick Mulvaney and even Brian Montgomery will play roles in the policy formation process, but none bring the heft and depth that Phillips has provided.
The devil is in the details on the decisions ahead. Things like capital levels, UMBS and the CSP, structure and limitations of the GSE’s in a post conservatorship state, only scrape the surface of the truly significant decisions to be made ahead. The Treasury Department holds the pen relative to any changes to the preferred stock purchase agreements (PSPA) with Fannie and Freddie. For those that watch this issue carefully, the loss of Craig Phillips is similar to losing a key play maker on your football or basketball team. It can completely change the record of wins and losses going forward.
What happens next will be something for careful analysis.
David H. Stevens, CMB, is an Advisor to Mortgage Media. He has held various positions in real estate finance, including serving as SVP of Single Family at Freddie Mac, EVP at Wells Fargo Home Mortgage, President and COO of the Long and Foster Realty Companies, Assistant Secretary of Housing and FHA Commissioner, CEO of the Mortgage Bankers Association.