Credit: Stephen Sauer
Ideas Made to Matter
This former federal housing chief wants us to think differently about risk
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built a national reputation for visionary leadership in housing finance policy one gig at a time, working his way up to head the Federal Housing Administration from 2015 to 2017. These days he is executive director at MIT’s Golub Center for Finance and Policy.
Golding’s particular passion is affordable housing. At the Department of Housing and Urban Development, he advocated for the expansion of the Housing Trust Fund, which helps states produce and preserve affordable housing for extremely low- and very low-income households. At Freddie Mac, he served as program executive for the lender’s Making Home Affordable program to help homeowners avoid foreclosure.
His most recent work examines systemic racism in the mortgage market.
On the eve of the Golub center’s annual conference, which this year focuses on the future of housing finance, we asked Golding for his thoughts on housing equity and how he works with ideas.
What inspires you?
Mission and people. Making even a small difference in the world. I want to believe that my work on foreclosure prevention and at the Federal Housing Administration has allowed tens of thousands of families (or more) to have a house.
Where do you get ideas?
Conversation. I think by talking, and I like to talk with an assortment of people from a variety of disciplines. At Freddie Mac, that would be IT, legal, sales, the trading desk, and even accountants and auditors. What were they seeing? What were the issues? What did they think. No one discipline has a monopoly on ideas.
How are new ideas discovered and developed in your organization?
I am still relatively new at the Golub Center, but I am impressed by the desire among the directors and research staff to bring theory and data together to advance our understanding of government and markets. It’s an organization that is driven by what is happening today. We have written several papers and blogs on government response to the economic consequences of COVID-19, many of which came from hallway and Zoom conversations.
Who do you share new ideas with? How do you test ideas?
I like to talk and discuss, wander the halls and talk to people to test ideas and to learn from them, which is hard in this time of social distancing. I am a believer that we will go back to the old normal of offices and in-person classes. We are social animals, and while technology has dramatically lowered the cost of communication, it cannot replace in-person interactions.
When do you know it is time to abandon an idea?
For better or worse, I tend not to abandon ideas … just put them on a back burner.
For example, I have always complained about risk-based pricing in the mortgage market and the use of large data to pinpoint risk. Theory tells us that pooled equilibria are more efficient. But that is fighting against a trend in the market to make finer and finer distinctions in risk.
I think that one day the pendulum will swing back towards more aggregate pricing. Sometimes ideas need to wait.
What was your worst idea?
This one is easy … I helped design the capital standards for the secondary mortgage market in the 1990s. It was supposed to be a “state-of-the-art” stress test that would make sure that the mortgage market could withstand a severe economic downturn. As we know, everything blew up in 2008.
Perhaps I can take comfort in knowing I wasn’t alone. It’s always good to recall the testimony of Fed Chair Alan Greenspan, who said, “I made a mistake in presuming that the self-interest of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”
In short, what looked like good decisions by individual homeowners and financial institutions led to a disaster, with millions losing their homes.
How do you know an idea is a good one?
Somewhat paradoxically, the more vested interests fight an idea, the more you may be on to something.
I have been pushing for eliminating loan-level risk-based pricing in mortgages and just pricing for the overall risk. Like we used to do when mortgages were provided by savings societies that were mutually owned by the community. The idea is viewed by almost all as impossible and retrograde. But what is past may be prologue.
At MIT Sloan, we talk about ideas made to matter — ideas that are carefully developed and have meaningful impact in the world. In that context — what is your idea made to matter?
Redefining how we look at fairness and systemic racism in the mortgage market. Traditionally, we looked at discrimination as the residual that we couldn’t explain. Black homeowners pay more for mortgages. We would look at what couldn’t be explained by “risk.”
But that’s backwards. We have established a system that chooses to price by risk rather than to insure the risk as a big pool. And we choose to risk-base price certain risks and not others … and we make these choices in a way that systematically hurts communities of color.
My recent paper, “The Unequal Costs of Black Homeownership,” with Michelle Aronowitz and Jung Choi, quantifies these effects and finds that it costs Black homeowners over $60,000 in retirement savings. The paper outlines reforms that could be accomplished quickly that would materially narrow the Black-white wealth gap.
Perhaps the time is right, and policymakers will be more receptive to these reforms.
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