The federal government’s business plan of late has been so heavily dependent on deficit spending and debt accumulation, it’s enough to make even the most ardent Keynesian blanch.
But the business that is the federal government persists. Oh yes, the debt burden is more crushing than ever, a new strategy for growth is desperately needed and the stockholders (read: taxpayers) are increasingly frustrated by the lack of tangible dividends, but still, the business persists.
Some may be tempted to say it persists despite itself, or simply on sheer economic superpower momentum, but behind the eye-popping dollar figures and day-to-day Dow scores, we see glimmers of actual, successful business management going on.
Take Federal Housing Administration Commissioner David Stevens. According to an American Banker investigation, the delinquency rate on single-family mortgages insured by the FHA has fallen in each of the last three months, even as FHA loan volume has skyrocketed.
That huge growth in volume very nearly sank the FHA. Its capital reserve ratio hit a low of 0.53 percent last fall, far below the congressionally mandated level of 2 percent.
But under Stevens’ watch, the FHA raised upfront mortgage insurance premiums, required higher down payments from lower-quality borrowers and reduced seller concessions from 6 percent to 3 percent.
Each measure proved unpopular to some degree, but each step was calculated, rightly, to simultaneously increase a borrower’s own stake in the purchase, and therefore decrease his own likelihood of default, and also reduce the FHA’s own risk.
Stevens also drastically stepped up enforcement efforts among underperforming FHA lenders. Since joining the FHA last year, Stevens has shut down more than 1,100 (formerly) FHA-approved lenders. In the previous decade, Stevens told American Banker, the highest number of lenders the FHA had ever cut off in one year was less than 30.
Good managers must show clarity of vision and the fortitude to let go of dead weight. Stevens has done both.
And in so doing, he has saved his agency. By Sept. 30, if housing market conditions do not deteriorate too badly, some predict the FHA will be back above its 2 percent capital ratio.
Like any large company, the U.S. economy will live or die on the strength of its middle managers. That many of these federal middle managers are simple political appointees, rather than bootstrappers who have worked their way through the ranks on hard work and merit, only magnifies the importance of those, like Stevens, who have found surprising success when failure loomed, and was perhaps expected.
That the FHA has thus far been able to right itself, in the cruel glare of a spotlight it was never intended to inhabit, is a large success, one the federal government would do well to emulate among its many other “corporate” branches, divisions and subsidiaries.
