For the past eight years, Brian Montgomery has helped mortgage lenders fight penalties sought by the Federal Housing Administration. Now he's President Trump's nominee to lead the agency.
Montgomery, who is seeking a second stint as head of the FHA, would play a key role in mortgage-insurance decisions that could mean billions of dollars for clients of The Collingwood Group, the Washington consulting firm that he co-founded and currently serves as vice chairman.
The potential for conflicts of interest is putting Montgomery in the awkward position of possibly recusing himself from specific matters involving some of the country's top mortgage lenders.
The FHA, which is part of the Department of Housing and Urban Development, sells insurance that repays lenders if a borrower defaults. The protection allows borrowers to get mortgages with down payments of little as 3.5% and credit scores as low as 580 on a scale of 350 to 850, making the program a favorite among first-time home buyers. The agency can also penalize lenders for mistakes in FHA-backed loans that lead to insurance payouts.
Collingwood is known in the housing-finance industry as a specialist in helping firms navigate FHA-related penalties and lawsuits. Montgomery's former clients include Wells Fargo & Co., US Bancorp, Nationstar Mortgage Holdings Inc. and Caliber Home Loans Inc.
He is also on the board of Radian Group Inc., a private mortgage insurer that competes with the FHA and could profit along with other rivals if the Trump administration shrinks the agency's footprint. Montgomery has said he would leave Radian's board if confirmed by the Senate. The Senate Banking Committee plans to host a confirmation hearing for Montgomery next week.
Aggrieved party
"Montgomery is somebody who has spent several years thinking about these issues from the perspective of the aggrieved, regulated party,'' said Jeff Hauser, executive director of the Revolving Door Project. "The idea that he can totally swing his head back and think of these issues solely from the public interest is to expect him to be a Superman.''
He isn't the first Trump pick who would regulate an industry that he once worked for. Securities and Exchange Commission Chairman Jay Clayton made millions of dollars representing banks and hedge funds as a law partner at Sullivan & Cromwell. Deputy Interior Secretary David Bernhardt had been a paid consultant for a developer facing regulatory hurdles.
In an email, Montgomery said that he filed an ethics agreement spelling out the conflicts and would follow all government requirements. "At this stage in my life I was offered the opportunity to return to public service where I believe I can make a positive difference," Montgomery wrote.
Industry experience
"Historically, it is not unusual for FHA commissioners to recuse themselves from certain issues given that most have experience in the mortgage industry prior to assuming the position," HUD spokesman Raffi Williams wrote in an email. Dana Wade, HUD's general deputy assistant secretary for housing, would step in on issues when Montgomery recuses himself, Williams wrote.
Lenders were hit with billions of dollars in FHA penalties for mortgage errors after the financial crisis. In pressing the cases, the Department of Justice used the False Claims Act, a Civil War-era law that allowed it to extract treble damages. Banks such as JPMorgan Chase & Co. complained that the move was heavy-handed and pulled back from FHA lending.
Lenders would still like stronger assurances that they won't be held liable for small mistakes. The Trump administration has signaled that its open to making changes.
"There are so many traps involved" in FHA lending, HUD Secretary Ben Carson said at a House Financial Services Committee hearing last week. He said his staff was talking with the Department of Justice and "working on those regulatory barriers that are precluding people from wanting to get involved."
A former executive who was pitched for business by Collingwood said the firm portrayed itself as a specialist in dealing with False Claims Act penalties.
Using connections
Collingwood officials said they knew how the agency worked and helped lenders who have trouble with the FHA, said the executive, who requested anonymity because his employer hadn't authorize him to speak on the matter. Collingwood executives said they could use connections to help get an audience with HUD officials, navigate potential penalties and set up processes to avoid them, he said.
Tim Rood, Collingwood's chairman, said the firm helps lenders "effectively and responsibly" use government programs.
"We work to ensure the operational readiness and compliance of our clients, and in some instances we help them respond when an agency challenges the efficacy of their operations," Rood said in an email.
Ed Golding, who headed the FHA under President Barack Obama, said Montgomery would sometimes stop by his office but never had a specific request on behalf of a client.
"He would come by my office from time to time and say, 'Can I be helpful?'" Golding said, adding that Montgomery was friendly to agency staff and remembered the names of their kids. "As a person who cares about the FHA, he was always every bit of a gentleman."
Ethics agreement
Montgomery, who co-founded Collingwood after heading the FHA from 2005 to 2009, said in an agreement filed with the Office of Government Ethics last month that he would avoid certain dealings with past clients if confirmed. In a separate disclosure, he said he was paid more than $5,000 by companies including Wells Fargo, US Bancorp, Nationstar and Caliber.
Wells Fargo in April 2016 agreed to pay $1.2 billion to settle claims over FHA loans originated between May 2001 and December 2008, according to the Justice Department. In June 2014, US Bancorp agreed to pay $200 million to resolve claims tied to loans made from 2006 through 2011.
Craig Holman, a government affairs lobbyist for nonprofit Public Citizen, said ethics laws would prohibit Montgomery from matters directly impacting his former clients for a year. He would still be able to make decisions that affect the broader lending or mortgage insurance industries, Holman said.
In addition to dealing with the aftermath of the False Claims Act settlements, the new FHA chief will be heavily involved in deciding how high to set the agency's insurance fees, which are paid by borrowers as part of their monthly mortgage payments.
Lobbying Congress
Those decisions could have a big impact on the profits of Radian, which spent $370,000 through the first half of the year lobbying Congress on issues including those pertaining to the FHA, according to federal disclosure forms.
On a conference call with analysts in January, Radian executives lauded a Trump administration decision not to cut FHA premiums, which made the company's insurance more competitive.
At the House Financial Services Committee hearing, Carson said the administration is also reviewing the approval of Property Assessed Clean Energy loans on homes with an FHA mortgage. Homeowners and businesses use so-called Pace loans to finance home improvements but the loans are controversial because they can expose taxpayers to more losses if a borrower defaults.
Montgomery listed Elon Musk's SolarCity, one of the largest solar panel installers, as a client for which he provided FHA advice.
