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PSA: Inside the Agency, Outside the Box at FDIC

Another in Understanding Government’s series “Public Service Announcement” profiling the careers and challenges of notable government employees

By Norman Kelley

At the epicenter of last year’s economic meltdown, along with the disappearance of major financial firms, was the collapse of IndyMac Federal Bank, a California-based institution that found itself overwhelmed with distressed mortgages. A result of the nation’s toxic housing bubble (and an at-sleep-at-the-wheel regulatory infrastructure), IndyMac was emblematic of the country’s national mortgage foreclosure crisis.  FDIC economist Clare Rowley was in the eye of Indy Mac’s particular hurricane, trying to rectify that bank’s troubled assets and find ways to save homeowners with IndyMac mortgages from foreclosure.

Clare Rowley with thanks to Washington Post-Newsweek

Clare Rowley

In July 2008, along with other FDIC colleagues, Rowley was dispatched to Pasadena, California, site of IndyMac’s home office. There she helped implement a mortgage modification program that allowed qualified but struggling mortgage holders to stay in their homes. The FDIC’s modification program, which some called a “Model in a Box,” consisted of three basic parts: lowering interest rates, extending  loan terms, and principal forbearance.  The model worked:  by the spring of 2009, 88 % of modified loans were still in force.

When the new Obama administration began tackling the mortgage crisis in mid-2009, Rowley was part of an interagency task force, and her insights and experience from the work with IndyMac helped shape the administration’s Home Affordable Modification Program (HAMP).

Because of her work and contribution as a federal employee, Rowley was awarded a 2009 Service to America Medal by the Partnership for Public Service, a nonprofit organization that promotes excellence in public service. At age 25, Rowley won in the Partnership’s “young professional” classification.

“I was very honored,” said Rowley about the “Sammies” ceremony. “I was very surprised to be chosen for that pool of individuals in my specific award category, and I was absolutely shocked to win the overall award for my category, given that other people in my group had done so many amazing things.”

Rowley was as inspired by others’ achievements as she was by the award she received.  “Sometimes you get so ingrained, so involved in your own world you forget all the different programs, all of the different offices that are involved in the government. It’s just amazing what people accomplish every day.”

Rowley’s road to Washington began with a classic young person’s yearning to leave one’s point of origin.  Education was Rowley’s launching pad.

“When I applying to universities, I applied all over,” she said. “I was choosing between going to George Washington University and going to a university in Boston. I decided that I needed to get some place as far away from upstate New York as I could be.”

She chose GW and ended up majoring in economics. Like many academic newcomers to Washington, she did a stint of internships. Initially, she thought of pursuing a political science major, but discovered that she “wanted to do something that was a little bit more quantitative, and that’s how I chose economics.”

After college, she began working at the Federal Insurance Deposit Corporation in a two-year research position. While at FDIC, she enjoyed her coworkers and their encouragement.  She soon switched to a long-term position there.

While many government employees note the benefits of some time on the private side, Rowley, on the other hand, thinks that it is equally important for those from the private sector to have government experience. Rowley, who said she may consider a private sector opportunity down the road, says that government work “makes for a more well-rounded worker.”

The public can become frustrated with the government, she explained, because they find it too slow to make decisions. However, when one is in government, one can understand how decisions have to move through the bureaucracy.

“There isn’t just one executive laying down the law,” Rowley pointed out. “It’s more collaborative.”

Still, there are areas where government agencies can’t match private sector corporations – including brand recognition.  Rowley learned early on at FDIC that most people recognized her agency’s initials but still could not figure out what it did – despite a FDIC notice being either on the front or the inside of every bank or S&L about insuring deposits up to $250,000.

“In the past, if somebody asked me where I worked, I would say the FDIC,” she said. “You could see, sort of, that they recognized it, but couldn’t figure out where it was from. But in the past year or so when I tell people I work for the FDIC, people recognize it right away, and they have a lot of interest in what I’m doing just given the unique economic circumstances.”

Rowley’s own unique economic circumstance was at IndyMac. There, she learned about how objective numbers collide with real world applications. In the agency’s Insurance and Research division, she provided quantitative financial analysis and data support for policy discussions within FDIC. Her work was removed, however, from  implementation of on-the-ground solutions at troubled financial institutions like IndyMac.

“IndyMac was my first experience being at an actual working, living bank,” said Rowley. “Sometimes you have an idea and the math works out, and the numbers on the finances work out, but it’s not practical from an operational, working perspective. [At IndyMac] I learned the nuances of what makes a modification program successful.”  Rowley points to a “servicing infrastructure” as the key component to modifying mortgages, including the ability to reach out to borrowers, manage incoming call streams, and effectively communicate the marketing of the modification program.

“It’s all of the mundane tasks, the very day-to-day communications that will really make a program successful,” she says. “You certainly have to have a strong infrastructure in place” to create and maintain a standardized set of procedures.  Rowley points to “those mundane business, day-to-day operating processes that have to be very solid to make the program successful.”  Rowley and another FDIC colleague, who was also on the IndyMac modification program, were drafted as members of an interagency working group mapping out the structure of the program that would later become HAMP.

“When you look at the way the modification terms are decided, or some of the valuation analysis that is done to make that modification decision, those were all based off of the IndyMac experience,” Rowley explains. “I offered insight into structuring modifications. On the operational end, how do you provide your servicers with the information required to get the program off the ground?”

Yet in spite of the on-the-ground experience and insights provided to the new administration, many critics say the Obama administration’s Home Affordable Modification Program isn’t doing very well.

Atlantic blogger Daniel Indiviglio recently gave HAMP the following terse assessment: “Some government programs turn out to be moderately successful. Others turn out to be a disappointment. A few turn out to be disastrous failures. Then there’s the Obama administration’s mortgage modification program, which hasn’t done well enough to qualify for even the worst of those categories.”

Indiviglio writes that, out of the over three million requests sent to borrowers, only 31,382 have been made permanent; in other words, about 1 percent. Other figures were more generous, posting the rate at 4% or 5%.

So what happened? First, one has to remember this program is not administered by the FDIC, but by the Treasury Department.  The question, then, is whether Treasury learned from FDIC’s experience.  Federal agencies are not known for sharing information or expertise.

Offering some interagency insight from the FDIC vantage point, Rowley notes that loan modifications are “implemented to deal with a crisis, so you’re dealing with an industry that is in a crisis situation, and the expectation is to build a perfectly functioning business unit in a short period of time.”

Rowley agreed that the results may seem “disappointing,” largely because people have been expecting individual loan modification programs to solve deeper structural problems in the economy. For Rowley, despite the low success rate – and that the program is less than a year old (as is the Obama administration), it’s “too soon to judge the outcome of the program.”

“At the end of the day,” she continued, “if the program is not as successful as one has hoped, at least there would be an investment in the technology, and improvement and better preparation” if a similar crisis arises in future years.

As for the economy more generally, Rowley said that there are “positive signs” from different economic indicators. “The programs that the government has implemented do appear to be providing a foundation, but there is still a ways to go and grow.”

As for Rowley’s own plans for growth, she’s continuing her education with a professional certification course as a chartered financial analysts (CFA), and plans to pursue a Master’s program in statistics.

“I have a lot of different interests,” she remarked about her future. “I have an interest in economic development and international issues as well. I certainly find housing . . . as a topic that touches every one; it has such broad implications. I really think it just a matter of what opportunities open up along the way. You never know who you can meet and what can happen.”

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