I always loved the word “Fiat.” Not the car, the concept. I first heard it in debate class back in high school. It was a tool that debaters used to discuss the positive and negative aspects of a given course of action. By using fiat, you could skip past all the issues relating to actually getting the thing done and just focus on what would be the likely outcome when it became a reality. Webster’s online dictionary defines fiat as “a command or act of will that creates something without or as if without further effort.” I love that. It’s like “Let there be light!” but for humans. It’s like the debater’s own Fairy Godmother who, with a wave of her wand, can create the future any way we envision it. Fiat is a very handy tool for professional debaters, like politicians and policymakers, who must fully consider all impacts of a course of action before signing anything into law. But it’s only a thought experiment, to borrow from Albert Einstein. It’s just a mental exercise that allows us to arrive on the same page and draw some lines around an issue for further discussion. We don’t actually have fiat power. Or is this just one more of the many things that seems to have changed without my consent since high school? First my weight, then my hairline and now the Treasury Department and Department of Housing and Urban Development believe they can solve all of our housing woes with a 32-page report and three easy steps. I’m thinking we now know what the government is hiding at Area 51: a fairy godmother. Don’t get me wrong. I’m sure some good people put some time and effort into this. I thank them. But to let the anticipation build for months while we wait for the government to unfold its masterplan only to be told that we’re going to (1) phase out the GSEs, (2) fix the fundamental flaws in the mortgage market and (3) put the government back on support for affordable housing is like … well, it’s rather like spending $10 million on a council that interviews 700 witnesses and then returns the verdict: “the financial crisis was avoidable.” Am I alone in sensing madness here? Has history come back around so quickly? Are we again in the presence of leaders who rise up proudly, puff out their chests and proclaim that we will no longer sacrifice our virgins to a stronger, more experienced evil? “We shall slay the dragon!” Crowd goes wild. Are we expected to cheer like idiots as they point to some helmeted and therefore faceless champion who will march out and do battle with this evil, and then just go back home and watch more TV? When did creating a report that says what everyone already knows become an acceptable form of accomplishment for our government leaders? Sure, it’s interesting to see that the Financial Crisis Inquiry Commission learned that “widespread failures in financial regulations and supervision proved devastating to the stability of the nation’s financial markets” and that “dramatic failures of corporate governance and risk management at many systematically important financial institutions were a key cause of the crisis” and even that “there was a systematic breakdown in accountability and ethics.” All very interesting. But I learned all of this and more at an industry trade show I attended four years ago and all it cost me was a couple cups of coffee and a few drinks at the bar, not $10 million! Now, Treasury and HUD say that one key to solving the fundamental flaws in our industry is to put in place national standards for mortgage servicing. No mention of how this should be accomplished or by whom — one assumes the new federal agency will have a hand in it, but the report doesn’t mandate that. Fiat? And what of technology? No company in our space can operate without it and for all the talk of standards and transparency in the report, nowhere does it touch on the legacy systems that have kept the industry running through refi-boom and housing crash. Fiat! Without fiat power, I suspect getting any of this done is going to be far more challenging than the government thinks. While the report does talk about changing guarantee fees and underwriting standards and generally making it easier for private investors to compete, they forget that decades of unfair competition powered by a taxpayer backstop and the world’s best lobbying machine have made it unnecessary for these giants to modernize their business practices. Change will hurt. The good news is that this industry understands change, knows how to manage it and, in the case of the GSEs, welcomes it wholeheartedly. Some of the other prescriptions included in the report will be harder to swallow unless the government finds someone who understands technology as it is applied to U.S. financial services firms. My advice would be for them to find someone who fits that bill now. Damn! I should have written that into a report! Rick Grant is veteran journalist covering mortgage technology and the financial industry. Follow him on Twitter: @NYRickGrant
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