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FHA Chief Nominee: Treat Lenders Like Partners, Not Foes

President Trump’s nominee for Federal Housing Administration commissioner discussed a need for regulatory reform and system upgrades at the department during his Senate hearing — and also faced withering criticism over his work as a private consultant for financial companies.

Brian Montgomery on Thursday testified before the Senate Committee on Banking, Housing, and Urban Affairs, pointing to his past service as the FHA chief and expressing a desire to bring more transparency to the regulatory landscape.

“To be clear, fraud and misrepresentation have no place in any industry, much less the one that represents the largest investment most families will ever make — but I wonder if we haven’t gone too far,” Montgomery said in his opening statement. “We must do a better job of providing regulatory clarity to mortgage lenders. It’s time we treat them more like business partners than adversaries.”

Montgomery, who served as FHA commissioner from 2005 to 2009, blamed unclear regulations for tight credit and the departure of major banks from the federally backed lending landscape. The nominee expressed specific criticism for the Department of Justice and its use of the False Claims Act to pursue mortgage lenders, asserting that too often the government cracked down harshly on companies for simple errors; his potential future boss, Department of Housing and Urban Development secretary Ben Carson, expressed a similar sentiment earlier this week.

For instance, Montgomery said lenders had gotten in trouble over FHA loans with minor mistakes, such as a missing gift letter from the original file; years later, when the borrower fell behind on payments and the loan entered default, the lender found itself in trouble for the clerical error.

“That’s a violation of FHA rules. But I don’t think it’s treble damages plus civil money penalties, which is in many cases what happened,” Montgomery said.

“How do you reserve for the unknown times three?” he asked rhetorically, adding later: “If the goalposts keep getting moved on [lenders], I completely understand why they left the FHA program.”

But Montgomery faced pushback from some Democratic members of the panel, including Sen. Catherine Cortez Masto, who claimed that she saw only a handful of False Claims Act cases in her previous stint as Nevada’s attorney general. And Massachusetts Sen. Elizabeth Warren pressed Montgomery on his post-FHA work with the Collingwood Group, a Washington, D.C.-based housing advisory firm.

Warren noted that when the DOJ won a $1.2 billion settlement from Wells Fargo over fraudulent FHA loans in 2016, Collingwood had helped advise the banking giant. In addition, the loans in question were certified between 2001 and 2008, a time period that included Montgomery’s tenure at FHA.

“I’ve seen some amazing cases of spinning through the revolving door, but this one really might take the cake,” Warren said.

Montgomery responded by pointing out that he wasn’t personally involved with the Wells Fargo case while working at Collingwood, and that the advisory firm had worked with the bank’s legal team.

Other highlights

The nominee also called for system upgrades at FHA, saying that the administration’s IT infrastructure is highly outdated, but that officials have been forced to look “for loose change under the sofa cushions” to fund any upgrades. The CHUMS system, for instance, is based on 30- to 40-year-old technology, which both Montgomery and Sen. Mark Warner — a Virginia Democrat — said could contribute to errors in loan processes.

“We need to bring FHA technology into the late ‘90s,” Montgomery quipped.

Montgomery additionally pointed out that while he was nominated by Republican President George W. Bush, he volunteered to stay on for six months under Democratic successor Barack Obama.

“Some of my Republican friends and colleagues still ask why I agreed to serve in a Democratic administration, and my answer has always been the same: They asked for my help. It was that simple,” Montgomery said. “Now when I’m asked why I would want to return to HUD, the answer is just as simple: I believe I can make a positive difference.”

Written by Alex Spanko