Are advocates’ efforts to steer housing finance reform into a new era all for naught? In a front-page story for The New York Times, Pulitzer Prize-winning journalist Gretchen Morgenson writes that Wall Street is having undue influence in GSE reform, led largely by a “revolving door” of officials that continue to rotate in and out of top government positions before returning to the private sector.

The investigative report take special aim at three people:

  • Michael D. Berman: Former chairman of the Mortgage Bankers Association and one-time advisor to HUD Secretary Shaun Donovan. Berman returned to the private sector in 2014 but still informally consults for FHFA;
  • David H. Stevens: Joined FHA in mid-2009 after serving as president of Long & Foster, the largest privately-owned real estate company in the nation, and after serving as an executive with both Freddie Mac and Wells Fargo. Berman hired Stevens as the Mortgage Banker Association’s chief executive in 2011 after he [Berman] was promoted to Chairman; and
  • Jim Parrott: Counsel to Secretary Donovan from July 2009 to December 2010 before serving as senior advisor to the National Economic Council at the White House where he focused on housing finance policy until January 2013. Parrott then started his own shop, Falling Creek Advisors, where his roster of clients included five or six companies in different parts of the housing finance ecosystem.

The crux of Morgenson’s article is that Berman, Stevens and Parrott are among those who have used their high-ranking positions in both the public and private sectors to craft housing finance reform that reflects the interest of the nation’s largest banks and mortgage companies – even at the expense of low- and moderate-income households and smaller community banks.

Case in point: In 2010, as the Obama administration began to turn its attention to housing finance reform in the wake of the taxpayer-funded bailout, Berman – in his role as chairman of the Mortgage Bankers Association – led a coalition that recommended that Fannie Mae And Freddie Mac be replaced with new mortgage guarantors, backed by private capital, which would issue mortgage securities with government guarantees. Essentially, banks could lend as they please, and for a fee, the U.S. government would insure the banks from any losses on those loans. Some may call it low-cost insurance, but it’s really a massive subsidy to Wall Street’s biggest lenders. The coalition Berman represented consisted of mostly large banks and mortgage insurers.

In late 2012, Berman was pegged to serve as HUD Secretary Shaun Donovan’s senior advisor for housing finance reform—a potentially huge conflict of interest, notes Morgenson.

Though Berman, Stevens and Parrott did not stay in the public sector for long, each continued to exert influence over GSE reform when they returned to industry.

An analysis of lobbying records, legal filings, internal emails and memorandums, housing officials’ calendars, and White House and Treasury visitor logs illustrates the frequency with which the trio met with housing policy officials after returning to the private sector. Stevens, for instance, had 19 meetings between February 2012 and April 2015 with government officials.

Meanwhile, advocates for low- and middle-income borrowers expressed frustration with securing such meetings. Robert Gnaizda of the National Diversity Coalition said the Obama administration seemed disinterested in hearing his constituents’ concerns.

Michael Smallberg of the Project on Government Oversight explains:

“This is a classic example of the revolving door at its worst. These are large financial institutions that already have an edge when it comes to getting their voices heard on Capitol Hill and at their regulatory agencies. When you hear they are hiring the key policy makers to represent them, it raises serious questions that these decisions are being made not on the merits but on those political connections.”

Berman, Stevens and Parrott have all brushed off criticisms about potential ethics violations. Each has suggested that their work on housing finance reform in the private sector has not revolved around a “particular matter;” instead, they claim they’ve been involved in “general policy” more broadly. As such, there is no inherent conflict of interest, according to the code of ethics.

The debate as to whether to “recap and release” Fannie Mae And Freddie Mac is still white-hot. Wall Street continues to dig its claws into the GSEs’ share of profits in the $5.7 trillion U.S. home loan market. Meanwhile, housing advocates stress the need to stabilize Fannie Mae and Freddie Mac in order to provide a more diverse array of low-cost loan products to borrowers. If the GSEs were to be replaced by Wall Street, smaller banks would be less able to compete. Winding down Fannie and Freddie would be a disservice to low-income and minority borrowers, advocates say.

Tim Pagliara, founder and chairman of Investors Unite, a coalition of more than 1,100 Fannie Mae And Freddie Mac investors, shrugs off today’s report, telling DS News that this is old news for those who have been following it closely.

“I’m not surprised,” says Pagliara. “A lot of the movement to shut down the GSEs has been, on one level, irrational. There’s been a lot written about it. I think when you follow the money and the conflicts emerge, you see that it has less to do with policy than it does to do with the greed and arrogance of those that are trying to push their narrative.”

And on which big financial institutions were involved in this “cover-up,” The New York Times states:

“Four meetings on the topic took place at the Treasury Department in late 2010, records show. One hosted by Timothy F. Geithner, the Treasury secretary, included Brian Moynihan, the chief executive of Bank of America, and two founders of giant private equity firms: Stephen A. Schwarzman, head of the Blackstone Group, and Leon Black of Apollo Management Group.

“Just before Christmas that year, the Treasury’s staff finished fashioning a framework for resolving Fannie and Freddie, an internal document shows. The recommendations became public in a 31-page report to Congress, titled “Reforming America’s Housing Finance Market,” issued jointly by the Treasury and HUD on Feb. 11, 2011.”

Blackstone is a key name here. As we noted in a prior article:

“Both Treasury/FHFA claim FHFA did NOT act at behest of the Treasury yet FHFA was NOT present at the Blackstone meeting indicating Treasury in fact had a VERY active role in what was happening with Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s (this was the sole role of FHFA)

“Now, it is important to note that this meeting took place over year before the 3rd amendment was enacted so even if Treasury had financial projections for Fannie Mae and Freddie Mac’s that were far less optimistic than The Blackstone Group L.P. (NYSE:BX)’s at this meeting, there was a year for things to play out to determine if they or Blackstone’s were more accurate (Spoiler Alert: Blackstone’s were).”

In the meantime, the small changes in housing finance reform continue to benefit big banks. This fall, Fannie Mae And Freddie Mac each put up bundles of non-performing loans for sale, which by and large were picked up by Wall Street banks and investors.

Fannie Mae Bethany McLean