Secura/Isaac Group Announces Secura/Isaac Talent, a new Executive Search Firm

Secura/Isaac Group Announces Secura/Isaac Talent, a new Executive Search Firm

Secura/Isaac Talent, dedicated to finding exceptional talent for financial services clients, is the latest brainchild of global advisory firm Secura/Isaac Group

NEW YORK, Sept. 15, 2022 /PRNewswire/ — Secura/Isaac Group, the preeminent global advisory firm serving financial institutions, fintech firms, central banks, and domestic and international regulatory agencies, today announced the launch of Secura/Isaac Talent, an executive search firm dedicated to recruiting exceptional senior-level talent for financial services clients.

Secura/Isaac Talent seeks to connect clients to leaders who can effectively navigate the constantly changing challenges faced by today’s financial services sector. The new executive search firm builds upon the strength and expertise of Secura/Isaac Group, led by former FDIC and Fifth Third Bancorp Chair William Isaac. Secura/Isaac Talent brings deep industry expertise, intellectual capital, and unrivaled networks.

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Testimony to House Ways and Means: Government Policies are Responsible for the American Housing Crisis that is Crowding Lower Income Households Out of the Housing Market By Edward Pinto

Testimony to House Ways and Means: Government Policies are Responsible for the American Housing Crisis that is Crowding Lower Income Households Out of the Housing Market By Edward Pinto

On July 13th I testified to the House Ways and Means Committee on the Building Back Better Act. I explained how the bill’s funding proposals will double down on past failed policies, fuel inflation, and once again place low-income and minority households in harm’s way.

You can find the executive summary in this email and on the Housing Center website here and read the full testimony here.

Chairman Neal and Ranking Member Brady, and distinguished Members of the Committee, thank you for the opportunity to testify today.

Executive Summary:

The housing market is changing and the real culprit is a massive house price boom fueled by federal housing and monetary policies, which is increasingly crowding out lower-income Americans out of the housing market.

The current single-family housing boom, which began in 2012, was entirely foreseeable and was first noted by the AEI Housing Center in 2013. Since then, the housing market has been marked by too much demand chasing too little supply. Yet the policy response has been to boost demand even more: Federal housing agencies have loosened underwriting and the Fed has pursued zero interest rates and multiple rounds of quantitative easing, continuing even when the housing market began to appreciate at 16% in July 2021. In May 2022, home price gains were 17% and are only now expected to slow down as the Fed reverses these policies.

As a result, homeownership has gotten further out of reach for many lower-income and minority Americans. Consider that since 2012 wages have grown by 38%, but entry-level home prices have increased about 160%.[1]

This out-of-control price spiral means increased competition for fewer and fewer affordable homes. Potential entry-level buyers are increasingly pushed to the sidelines as they cannot afford to compete with more deep pocketed individuals, who experience the same competition, but higher up the price spectrum.

This is creating knock-off effects for people downstream. Left unable to buy a home, they remain in the rental pool, helping to drive up rents, which are now increasing at 16% nationwide. Many who cannot afford these rent hikes will be pushed into homelessness.

If that were not enough, inflation is now running between 8% and 9% and a Gallup survey from Jun. 1-20, 2022 finds that the Gallup Economic Confidence Index is now at its lowest level since 2009[2]

Inflation is a regressive tax and getting by – not to mention building savings to buy a home – is becoming increasingly difficult. Thus, misguided policies have severely hamstrung lower-income Americans, in particular minorities, who severely lag White Americans in homeownership and intergenerational wealth. If they can no longer reach the first rung of the housing ladder, how will they ever catch up?

The solutions are straightforward.

First, do not repeat the mistakes of the past.

Congress has undertaken 70 years of efforts involving many trillions of dollars in program expenditures, tax benefits, and government guaranteed financing. Yet neither the goal of making owner-occupied and rental homes affordable for low-income households, nor the goal of achieving generational wealth for low-income homeowners have been met.

The Build Back Better Act (BBBA) provides $184 billion in new housing related program expenditures, confirming that we have not learned from these failures.

As a cautionary tale, let’s examine the Housing and Community Development Act of 1968 and its aftermath.  By 1975 its devastating inflationary impact and ineffectiveness were clear as these two books so forcefully document.

The first, “Cities Destroyed for Cash: The FHA Scandal at HUD”, was written by a reporter at the Detroit Free Press in 1973. As the title indicates, in the aftermath of the 1968 act, neighborhood after neighborhood was ruined as they were “FHA’d”. Many of these neighborhoods have yet to recover.

The second, “Housing Markets and Congressional Goals” (1975), was written by Ernest Fisher, one of the nation’s leading housing economists for 50 years. Fisher noted that the 1968 act and its goals “were unrealistic as a quota of production, and…were inappropriate and would probably prove as disappointing as had many of the programs presented to and adopted by Congress over the past two and a half decades.”

He observed:

[f]rom 1967 to 1971…the Boeckh index of cost of residential construction rose by nearly 33%, and the average sales price of new houses purchased with the assistance of FHA mortgage insurance rose by 28%, from $18,611 in 1967 to $23,835 in 1971.

[Expanding leverage] so as to make home purchase “possible for lower income prospective purchasers” may bring greater profits and wages to builders, building suppliers, and building labor rather than assisting lower-income households compete in the market.

There you have it: the 1968 act led to neighborhood ruination, scandal, housing inflation, and government profit seeking.

In my view, BBBA would have the same unrealistic and disappointing results.

Next, with regard to zoning, the federal government has again had a sordid past. The federal government back in 1921 led a national effort to implement exclusionary zoning and land use policies designed to make newly built homes too expensive for racial and ethnic groups to afford and we are still living with the consequences.

There is no denying that we need more market rate supply. But subsidies and easy credit are not the solutions. There is a growing consensus that to make housing more affordable we must increase supply, not ease credit or increase government subsidies or suppress interest rates. In order to stop the price spiral that is pricing lower-income Americans out of the housing market and driving up rents we need more market-rate supply. Let me add, zoning and land use policies are fundamentally a state and local issue and should be addressed at those levels. We are already seeing promise across the country, even in California, where the legislature has recently passed laws, which could meaningfully encourage new construction activity.

Next, federal policies to boost demand have been shown to be counterproductive. The Fed has belatedly realized that it needs to tighten the monetary spigot. But its policies have already done a lot of damage and will continue to haunt lower income Americans in the form of higher home prices, inflation, and rents for years to come.

The compounding effect of these changes will mean less resiliency for borrowers and neighborhoods, many of which are lower-income and minority, to withstand an economic stress event. With many economic dangers from rising interest rates, inflation, and sky-high home prices, lurking, regulators should do more to protect borrowers and taxpayers, rather than lowering lending standards. We have seen this movie before and we should not allow it to happen again.

What should be done beyond state and local actions to add to supply? Congress should set a policy goal of reliably building sustainable generational wealth for lower-income and minority Americans.  Build intergenerational wealth and neighborhood and borrower resiliency by reducing the loan term to 20- or 15-years on high-risk loans (Low-Income First Time Homebuyers (LIFT Home)):[3]

*   The FHA should implement Low-Income First Time Homebuyers (LIFT Home) for low-income, first-time, first-generation home buyers.[4]
*   The GSEs should implement the Wealth Building Home Loan to reduce risk to taxpayers and to encourage borrowers to build equity.[5]
*   Congress should consider funding the Low-Income First-Time Homebuyer tax credit (LIFT Home).[6]S. Senator Mark R. Warner (D-VA) and colleagues in 2021 introduced the Low-Income First Time Homebuyers (LIFT) Act to establish a new program to help first-time, first-generation homebuyers – predominately Americans of color – build wealth much more rapidly.  By offering new homeowners a 20-year mortgage for roughly the same monthly payment as a traditional 30-year loan, LIFT will allow them to grow equity twice as fast.[7]

ABA misses the mark in its defense of the Federal Home Loan banks by Cornelius Hurley published by American Banker, May 30, 2022

ABA misses the mark in its defense of the Federal Home Loan banks by Cornelius Hurley published by American Banker, May 30, 2022

My long-time friend, Con Hurley, has had a long career of service as a top lawyer at the Federal Reserve Board in the 1970s when I first met him, general counsel of one of the largest banks in Boston, a partner who ran the Boston office of my former consulting firm The Secura Group, a professor at Boston University, and a member of the board of directors of the Federal Home Loan Bank of Boston for 14 years. To say he is intelligent and knowledgeable about the financial system is an understatement. Con is a patriot and even ran for public office (for the wrong party I might add) years ago. Con recently published an article in the American Banker newsletter suggesting that it might be time to review and perhaps reform the charter/mission of the Federal Home Loan Bank System, perhaps to broaden the types of low and moderate income loans it makes beyond mortgage loans. I believe this article and the discussion it advocates are both timely and appropriate. I hope you will enjoy and perhaps participate in the discussion. Bill Isaac, Chairman, Secura/Isaac Group.

About six months ago I co-wrote a Bank Think article stating that, in light of its declining fortunes and its failure to adapt to a changing marketplace, the mission of the Federal Home Loan Bank System ought to be reevaluated. I followed that up weeks later with an open letter to FHFA director-designate Sandra Thompson, who regulates the system.

These articles led to a particularly useful meeting with Ms. Thompson and her senior staff on the topic. Later at a public event, Ms. Thompson commented favorably on the notion of establishing an advisory committee to explore the possibilities of modernizing the Home Loan Bank System.

These calls for reform were met with silence from the System and from the Federal Home Loan banks. Then last week, a community banker who also serves as vice chair of the American Bankers Association, came to the system’s defense. Her exhortation, “Don’t mess with success,” was a disappointment. Touting the dubious success of a deeply flawed system fails to recognize the enormous potential of that system.

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Is crypto too cool to question? by Thomas P. Vartanian published by The Hill on May 13, 2022

Is crypto too cool to question? by Thomas P. Vartanian published by The Hill on May 13, 2022

My longtime friend and financial expert, Tom Vartanian, just published a very important and piece in The Hill on the potential dangers in allowing crypto currencies to continue operating throughout the world, including the US, without appropriate government oversight and regulation. Like Tom, I believe it is past time for Congress to hold hearings and to begin considering potential legislation/regulation. I urge you to read Tom’s article published in The Hill and become involved in the discussion.

What exactly is cryptocurrency? Is it secure? Should I invest in it? We’ve all heard and been asked these questions. The most recent thefts of $600 million of cryptocurrencies from the non-fungible token (NFT) gaming company Axie Infinity and $182 million from the algorithmic stablecoin Beanstalk adds to the questions. Perhaps that is part of what caused a 20 percent decrease in crypto stocks and a 60 percent decrease in crypto-focused companies in the first quarter of 2022. The algorithmic stablecoin TerraUSD lost no time in “breaking the buck” and causing fear and dislocations in the stablecoin market just this month.

But hype continues to overwhelm common sense, and fundamental stability questions about cryptocurrency go unanswered. Crypto is simply too cool to question. As TV commercials featuring Larry David suggest, it is old-fashioned to disbelieve in cryptocurrency’s bright future.

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Important Comment from a Banker

Important Comment from a Banker

Readers: A few days ago, I posted on my website a Wall Street Journal article by my friend and housing expert Ed Pinto and his colleague on the potential to improve housing outcomes for minorities. That provoked a banker, Stephen Lange Ranzini, to send me a thoughtful note suggesting how the government might improve home ownership for minorities. Our nation has devoted significant resources over most of the past century to promoting affordable home ownership for working class Americans, which helped many families climb the economic ladder and create a large and vibrant middle class in our country. Ranzini’s letter suggests a potentially important way for us to return to more sensible housing policies. It’s certainly worthy of consideration:

Bill – Thanks for sending the article by Ed Pinto.

In Ann Arbor at the intersection of Maple and Pauline they are building an apartment complex that will have about 400 bedrooms. It was originally proposed as condominiums but changed to apartments after the site plan was approved. This is not an isolated instance. All the many tall buildings that have been built downtown in Ann Arbor over the past two decades are apartments, because they were built using HUD Multifamily loan programs.

Why did this 400-unit project switch from for sale condos to apartments? Probably because the funding for condos is very hard to come by but the funding for apartments is very easy to obtain. Why? Most of these loans are backed by HUD loan guarantees. HUD will back apartment loans, but not condo construction or condo permanent financing loans for projects with more than 4 units. A developer can obtain a loan from HUD up to 90% of the “as built” appraised value of the project. Condo loans come from banks and banks will lend up to 70% of the “as built” appraised value of the project. An investor needs to put triple the investment into a condo project versus an apartment project and gets 1/3rd the return on investment relative to the dollars invested.

The bigger picture problem is that apartments don’t allow the building of inter-generational wealth. Only condos and homes do. Government money is flooding into the housing market, however virtually all of these funds are targeted at building more apartments, not promoting home ownership.

HUD’s programs are warping the market supply. This problem could be fixed if Congress would just fund the HUD 234d Multifamily loan program (which is the only HUD program that could be used to build 5 or more-unit condos for sale), which is on the books but has not been funded by Congress in decades. Only Congress can fix this problem for us. If we want to do something practical, we should all call on them to fix this. I have repeatedly done so myself both in writing and in person.

Best wishes,
Stephen Lange Ranzini
President & CEO
University Bank
Ann Arbor, MI

A Wasted Opportunity to Improve Housing Outcomes for Minorities by Edward Pinto and Tobias Peter published by WSJ on March 28, 2022

A Wasted Opportunity to Improve Housing Outcomes for Minorities by Edward Pinto and Tobias Peter published by WSJ on March 28, 2022

The home-valuation industry has become the federal government’s latest target for a massive and unjustified power grab. Unless stopped, the government, not markets, will set home prices, which could have catastrophic consequences.

To justify its takeover, the government is trying to scapegoat the appraisal industry—which is 97% white, 70% male and not well-organized—for having caused large disparities in racial wealth and homeownership. Cue last week’s report from the Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE, led by Housing and Urban Development Secretary Marcia Fudge and the director of the president’s Domestic Policy Council, Susan Rice, which asserted the existence of “inequities within current home lending and appraisal processes” for communities of color.

The government’s case is unsubstantiated. The PAVE report relied on three pieces of research. The first one was a blog post by the Federal Housing Finance Agency, which quoted 16 examples of racially charged language out of millions of appraiser reports but refused to disclose the total number of occurrences. The second was what Freddie Mac—one of the two mortgage giants—called “exploratory research” that was later directly contradicted by a report from the other giant, Fannie Mae. The third was a report by the Brookings Institution, which boldly claimed that 23 variables could completely account for all possible non-race-based factors affecting a home’s value. This left only racial bias as the explanation for the remaining value differences between white and black neighborhoods, which research we did for the American Enterprise Institute thoroughly discredits.

PAVE’s blatant disregard of pertinent research, use of cherry-picked data and discredited research lead it to flawed conclusions. This suggests either a lack of interest in getting to the truth or, more likely, that the report is only a pretext for centralizing valuation regulation under a new Federal Valuation Agency.

What comes next shouldn’t surprise anyone. On Tuesday, less than a week after the PAVE report’s release, the House Financial Services Committee will hold a hearing on the proposed Fair Appraisal and Inequity Reform Act, which would hand over the nation’s entire home valuation process to this new agency.

More-rigorous research shows that rather than being the fault of the appraisal industry, the racial homeownership disparity exists because of the failure of past efforts on welfare, school quality, crime, urban renewal or public housing by the federal government to address differences in socioeconomic status. The data clearly show that Americans with higher income and who are married have higher homeownership rates regardless of race. When they were of similar socioeconomic status, black, white and Hispanic households all had similar outcomes when we replicated the Brookings and Freddie studies.

We don’t dispute a legacy of past racism and lingering racial bias, which leaves blacks at a large income and wealth disadvantage, but history shows that government attempts to solve socioeconomic gaps through housing policy often backfire.

Examples abound, but consider these two. The 1967 Presidential Task Force on Housing and Urban Development proposed a 10-year housing program to eliminate all substandard housing in the U.S. It ended up destroying many American cities through a combination of lax lending to underqualified borrowers, careless government oversight (particularly in appraisals), and predatory business arrangements between the Federal Housing Administration and lenders. In the end, these actions wreaked havoc on black households and neighborhoods.

Or consider HUD’s 1995 National Homeownership Strategy, designed to achieve a homeownership rate well in excess of any in the nation’s history. The housing boom it unleashed went bust, leading to more than 10 million foreclosures and costing taxpayers dearly. Black homeowners and neighborhoods were among the hardest hit.

If home prices were no longer determined by markets but instead by a politicized valuation process, it is easy to see how the results could exacerbate racial and ethnic disparities in wealth and homeownership. The politicization of home prices to address perceived valuation inequities could lead to misvaluations on a massive scale. The areas most affected would be minority and rural areas, where home sales generally are sparser. This could engender even larger home price peaks and troughs, ultimately hurting lower-income households, which have the least wherewithal to withstand price declines.

Unless policy makers address disparities in socioeconomic status directly, make-believe solutions won’t be enough to raise housing outcomes for minorities. Sadly, PAVE seems to have wasted yet another opportunity to improve the lives of many disadvantaged groups in any lasting way.

Mr. Pinto is an American Enterprise Institute senior fellow and director of the AEI Housing Center. Mr. Peter is an AEI research fellow and assistant director at the Housing Center.

Taxpayer support for Federal Home Loan Banks is no longer justified by Cornelius Hurley published by The Hill on March 29, 2022

Taxpayer support for Federal Home Loan Banks is no longer justified by Cornelius Hurley published by The Hill on March 29, 2022

The U.S. taxpayers found out the hard way the cost of their “implicit” guaranty of Fannie Mae and Freddie Mac debt. Even after paying $191 billion, taxpayers are still on the hook for these government-sponsored enterprises (GSE). But the final chapter has yet to be written.

Another GSE, the Federal Home Loan Bank System, is flying under the radar propped up by the same implicit taxpayer guaranty. Like Fannie and Freddie, it issues debt at a discount due to the perception that taxpayers will make good on it. But unlike Fannie and Freddie, this GSE competes for its funding with the same taxpayers that underpin it.

The Federal Home Loan Bank of the United States, let’s call it “Bank U.S.,” is in dire straits. The fictional Bank U.S. is based on the consolidation of each of the 11 existing Federal Home Loan Banks. This makes sense because the GSE issues consolidated debt on behalf of all FHLBanks, plus all the banks are jointly and severally liable for the obligations of their sister banks.

If Bank U.S. were a commercial bank its total assets of $723 billion would rank it #5 just behind Citigroup.

Have you ever wondered why Bank A pays 0.75 percent on its savings accounts while Bank B pays 0.50 percent? You probably thought it was because of competition. That is partly true. However, in the funding market, Bank U.S. competes with both banks and with you every day. Bank U.S., you may be surprised to learn, is your bank. And, unlike you, Bank U.S. pays no federal income taxes.

In 2020, according to my calculations of SEC filings, the 11 Bank U.S. CEOs gained over $39 million in total compensation for overseeing what are essentially quasi-governmental agencies. As a practical matter, they cannot fail. Bank U.S. offers just one product: secured loans on favorable terms to member financial institutions. They have no dissident or activist shareholders to worry about and are immune from unwanted takeovers. Their innovation is restricted by law and regulation. Their geographic and customer market is fixed by statute.

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Edward T. Hida II Joins Secura/Isaac Group and Blue SaaS Solutions as Senior Executive Advisor

Edward T. Hida II Joins Secura/Isaac Group and Blue SaaS Solutions as Senior Executive Advisor

“It is my distinct pleasure to welcome Ed Hida as Senior Executive Advisor to both the Secura/Isaac Group and our technology advisory firm Blue SaaS Solutions. Ed looks back on an exceptional and distinguished career and is widely considered one of the TOP risk and regulatory experts in the financial services industry. Our clients could not be in more capable hands“, said William Isaac, Chairman of Secura/Isaac and Blue SaaS Solutions.

Ed Hida is among the most preeminent risk and regulatory experts in the financial services industry. He has worked with global, national and regional banks, insurers, asset managers, financial infrastructure and specialized finance companies. Ed is a trusted, strategic advisor to the C-suite and boards of many of the world’s largest and most recognizable brands in the financial services industry. He is a financial expert and Qualified Risk Director®.

Prior to joining the Secura/Isaac Group’s leadership team as Senior Executive Advisor, Ed spent more than 30 years leading risk and regulatory practices and large-scale projects as a Deloitte Advisory Partner, serving Deloitte’s most important clients, among them 7 of the 10 largest global banks. He led his clients through the most significant disruption to the banking industry during and after the 2008 financial crisis, helping them with the execution of regulatory remediation, enterprise risk management program development, CCAR and DFAST stress testing program design and implementation, and bank charter conversions among other programs.

He has advised major financial institutions on multi-billion dollar M&A transactions by conducting asset quality, infrastructure, risk management and regulatory due diligence. He has also served as the lead capital markets partner for large domestic and global banking audit clients, executing the assessment of risk management programs and reporting to the SEC and CFTC. Given the strategic and high-stakes nature of his work, Ed often reported directly to the Boards of Directors and to bank regulatory bodies, including the Federal Reserve, OCC and FDIC.

He served as an advisory board member of the Global Association of Risk Professionals and on the Blue Ribbon Panel of The Professional Risk Managers’ International Association. Ed is a prolific writer and speaker and has been featured in The Wall Street Journal, Financial Times, The Nikkei, Time Magazine, Bloomberg TV, Sky Business TV and Yahoo Finance TV.

He received his Master of Science in Management, Accounting and his Bachelor of Business Administration, Finance from the University of Wisconsin-Milwaukee. He is also a Chartered Financial Analyst and a Certified Public Accountant in the state of New York. Ed is a member of the Japanese American Citizens League and the Ascend Asian Executive Network.

Strong banks are essential to national security by Thomas P. Vartanian published by The Hill

Strong banks are essential to national security by Thomas P. Vartanian published by The Hill

The horror of war in Ukraine changes everything. It forces the world to recalibrate its priorities and convince democracies that they must fortify their economic security to maximize national security. It is more than luck that the United States possesses the economic power and banking system to orchestrate the imposition of global economic sanctions on Russia and any country that conspires with it. It is the result of two centuries of relentless commitment to entrepreneurialism and economic expansion. It has not always worked perfectly, but it has worked better than any other system on the planet.

The U.S. and other nations have equivocated about their need to maintain energy independence and are now paying the price. A war against climate change that reflexively shutters pipelines and delays drilling while the principal climate offenders in the world continue to mass-produce carbon-driven energy plays into the hands of the country’s adversaries and competitors. We need only look to Germany to understand how degrading its energy production resources in return for a bag of Russian beans produced an unhealthy addiction to Russian energy sources.

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