Fannie Mae’s vice president and deputy general counsel, Margaret Chase, knows what it takes to weather a crisis. Having joined the government backed-mortgage giant in 2005, Chase witnessed the height of the mortgage crisis, when millions of loans became delinquent nationwide.
Today Fannie Mae owns or guarantees more than 17 million loans across the country, and the company’s seriously delinquent mortgage loan portfolio has dropped to almost 1 percent.
“For a lawyer in this space, the change—from 2005 to today—has been nothing short of fascinating, remarkable, and seriously intense,” said Chase, reflecting on the mortgage industry’s shift to greater regulation.
Chase offers lessons learned from the financial crisis and steps for successful crisis management in highly regulated industries like housing.
Having been with Fannie Mae since 2005, what are the most significant ways you’ve seen the industry evolve?
Housing finance has changed dramatically since 2005. Prior to the housing crisis, the process of originating a mortgage was traditional—credit underwriting seemed to be expanding, mortgage servicing was routine, and the capital markets were booming and sophisticated. By 2010, more than four million mortgage loans across the country were delinquent.
Everyone who touched an aspect of the life of a mortgage had to rethink the way they did things—lenders, servicers, consumers, appraisers, insurers, investors, regulators, lawmakers, everyone.
Today mortgages are much more regulated, the private markets are smaller, consumers have more rights—and more avenues—to have their voices heard, and Fannie Mae and Freddie Mac have been in conservatorship for almost 10 years.
If you ask a mortgage lender or servicer where they spend their money these days, they will tell you on their compliance management systems and their enterprise risk departments. And so, for a lawyer in this space, the change from 2005 to today has been nothing short of fascinating, remarkable, and seriously intense.
You’ve been in your current GC role since 2012—how has your position evolved to meet industry needs?
When I took on the role of deputy general counsel of single-family mortgage servicing, the country was in the height of the housing crisis. Up to that point, I had been raised as a deal lawyer, not a mortgage servicing lawyer. Fortunately I inherited a team of seasoned, legal servicing professionals who taught me the legal pitfalls and business of servicing.
On any given day, my team and I were commenting on proposed regulations, closing complex financial transactions, drafting housing policy, opining on loan-level litigation, advising on borrower escalations, negotiating claims in bankruptcies, addressing customer questions, and even cracking open the U.S. Constitution to remind ourselves what’s in that Takings Clause. It was like the game whack-a-mole every day.
Today Fannie Mae’s seriously delinquent mortgage loan portfolio has dropped to almost 1 percent. And we aren’t just surviving change, Fannie Mae is driving it with innovation, simplification, and digital technology. It is focused on providing top-rate customer-service, innovative solutions to a costly mortgage process, and access to credit for creditworthy borrowers.
My role has evolved from whack-a-mole, to taking more time to be strategic and preventive. I continue to advise on policy, regulations, transactions, and litigation, but also, with the benefit of 20-20 hindsight, I am able to give our business clients perspective on what really matters and where the risks lie.
What best practices help you provide, oversee, and coordinate all legal advice and services to Fannie Mae’s single-family servicing business?
Over the years, what I learned to be best practices for an in-house lawyer in mortgage servicing can probably be applied to any finance-related industry. First, you cannot be a good lawyer without knowing the business of your company. Make time to figure it out or ask someone to teach you. Second, working at a highly regulated company, you must build a relationship of respect with your regulator.
You won’t always agree with them, but your regulator has to have a reason to trust you. So, when you say you are going to do something, you need to do it.
Next, lawyers can’t live in ivory towers. In a customer service industry, you have to get out, meet, and listen to your business’ clients, your external customers, and your external customers’ customers. Fourth, your business operations and the business operations of your external customers can make or break a good idea. You can’t turn a good idea into a success unless you have an appreciation for the people who are going to implement it.
Fifth, never lose sight of the big picture. Fannie Mae owns or guarantees over 17 million loans across the country—one policy change can have a significant effect on the mortgage servicers and homeowners of those loans. Finally, last but never least, keep it simple. Draft your contracts, policy, and advice as simply as you can. It makes the lives of your clients and external customers much easier and more efficient.
In the years since the financial crisis, what are some ways your team has been part of the effort to strengthen mortgage servicing?
During the crisis, every person on my team understood exactly how what they were doing directly contributed to strengthening the company and the mortgage market as a whole. They always knew the “why,” not just the “what.” We helped set housing policy that became the benchmark criteria for keeping homeowners in their homes, or if they had to leave, how to achieve a graceful exit through a short sale or deed-in-lieu.
We also helped move loans from mortgage servicers who didn’t prioritize managing delinquent loans to mortgage servicers who did. Further, we shared what we had learned during the crisis with various industry stakeholders, so they could benefit from our experience working with servicers and delinquent homeowners. We also fought to remedy the company’s losses through our rights in our contracts. And while the list continues, none of that would have been possible if our business clients hadn’t trusted our advice and hadn’t brought us in on projects from the beginning.
Having weathered the crisis, how would you characterize the road ahead?
When I came to Fannie Mae, I understood what a crisis on a specific deal was like and how to manage through it, but what I had yet to appreciate was how to lead a team through an industry-wide crisis.
What I would tell you now is if you find yourself in crisis mode, at least do these three things: 1. Empower and trust your team to be legal experts in their matters, so that they are vested and they want to do everything they can to support the enterprise. 2. Communicate. Communicate. Communicate. Be authentic and talk to your team often, tell them what you think is important, and make sure they know they can always reach you, and 3. Know when you need to ask for help—whether it’s outside counsel, other internal counsel, or your compliance or risk teams. It may be the best protection for your company and you.
Now that the housing financial crisis is generally behind us, I am proud of the way Fannie Mae, our legal department, and my team handled themselves. And looking ahead, I am excited about this next chapter and advising Fannie Mae through the new innovations and solutions it is bringing to the industry.
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