Intro/Outro: From the library of the New York Stock Exchange at the corner of Wall & Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism, right here, right now at the NYSE and at ICE's exchanges and clearinghouses around the world. And now, welcome Inside the ICE House.
Peter Asch: This is Pete Asch, your host, and I'm bringing you our final conversation from ICE Mortgage Technology Experience 2023. As many of you know, my day job is serving as the archivist for the New York Stock Exchange, and it's through that lens that we've discussed the roots of current market structure that stretches back to a buttonwood tree on Wall Street in 1792. We won't be going quite that far in this episode, just a century or so, to the Herculean efforts made by government and business to shore up the country's financial system between the crashes of 1929 and the beginning of World War II. Listeners should be familiar with some of the 1930s banking and exchange legislation that created many of the federal organizations and agencies that now monitor and support the American financial system. Our guest today, Federal Home Loan Bank of San Francisco president and CEO Teresa Bazemore leads an organization that was founded in that period with the purpose of working towards the goal of ensuring a roof above the head of all Americans.
She wrote last year, and I'm going to quote her now, "In 1932, at the height of the Great Depression, Congress created the Federal Home Loan Bank system to help desperately needed credit flowing for housing. Nine decades and several financial crises later, we continue that mission by giving member financial institutions of all sizes access to the global capital markets through each of the 11 regional FHL banks, resources that are especially critical to our small community bank and credit union members." My conversation with Teresa Bazemore on the FHLBank San Francisco, her mission to close the opportunity gap in the path to home ownership and her career is coming up after this brief break.
Speaker 3: Connecting to opportunity is just part of the hustle.
Speaker 4: Opportunity is using data to create a competitive advantage.
Speaker 5: It's raising capital to help companies change the world.
Speaker 6: It's making complicated financial concepts seem simple.
Speaker 7: Opportunity is making the dream of home ownership a reality.
Speaker 8: Writing new rules and redefining the game.
Speaker 9: And driving the world forward to a greener energy future.
Speaker 10: Opportunity is setting a goal.
Speaker 11: And charting a course to get there.
Speaker 12: Sometimes the only thing standing between you and opportunity is someone who's made the connection.
Speaker 13: At ICE, we connect people to opportunity.
Peter Asch: Our guest today, Teresa Bazemore, joined FHLBank San Francisco as president and CEO in March 2021. Previously, she was president of Radian from 2008 until 2017. Over her career, she has held a number of senior positions at Radian, Nexstar Financial and was the general counsel for the mortgage banking line of business at Bank of America. She also sits on the boards of First Industrial Realty Trust and T. Rowe Price Mutual Funds. Welcome Inside the ICE House.
Teresa Bazemore: Nice to be here.
Peter Asch: I used your words to introduce the organization you work for, but can you talk about how it's evolved since 1932 to serve the region, specifically?
Teresa Bazemore: The Federal Home Loan Bank system, as you said, was created by Congress in 1932. There are 11 regional banks. For the San Francisco Bank we cover California, Arizona and Nevada. And each bank is regional so that we can focus on what the needs are of the institutions, but also of consumers and businesses that are in our district. And so over that period of time when we first were created, you can imagine there were these building and loan associations. Think about It's a Wonderful Life and George Bailey.
Peter Asch: That's exactly what I was thinking about.
Teresa Bazemore: And also insurance companies, because at that time, insurance companies made a lot of loans directly to consumers. So, as a result of that, we went fast-forward. And as institutions started to change, Congress made changes over the course of time where now consumer banks, community banks, credit unions and CDFIs, community development financial institutions, are also now eligible member types for the Federal Home Loan Banks. They are able to come to us for loans that we call advances. We credit underwrite our members on a consistent basis. They pledge collateral with us. So, one of the misnomers about how we operate is that when they make a loan request, we already know what their borrowing capacity is because we've already sort of underwritten them in advance. They can come and get immediate liquidity for whatever those needs are. So, whether it is to fund their portfolios, members of the Federal Home Loan Bank system also are a large percentage of the holders of loans and residential mortgage backed securities. So that helps support the 30-year fixed rate mortgage in our country.
Peter Asch: How large is the team that you're working with to cover three large states?
Teresa Bazemore: Well, we have about 320 employees, so it's not a huge number of employees. I think we're pretty efficient in that regard. And we are a wholesale bank, so we're mostly focused on our members, but we're also focused a lot on the community, the developers, the nonprofits. We take 10% of our net income to support affordable housing. And so it's really important for us to understand what's going on on the ground in our districts, so we have a good chunk of folks who are focused on that. But yeah, we do everything with a bit over 300 people.
Peter Asch: That's impressive. And we're recording this in March 2023, so I believe you just hit two years in the position. What was that opportunity in California -- we're going to talk a little bit about your past, mostly East Coast -- that got you to move across the country?
Teresa Bazemore: So, in reality, I had been in the industry for many, many years and I decided to retire. And my husband and I decided that we wanted to be in a warmer climate. And unlike a lot of people, we decided to move to Los Angeles. We wanted to be in a vibrant city. We're both lovers of the arts, so theater, art, all of those things are important to us. So, we tested it out for a couple months and then we moved several months after that. So, we were already living in Los Angeles when this opportunity came up.
So, it was sort of very fortuitous in that regard because I was already living in the district, but then I had the opportunity to take this opportunity. And a lot of it was about the mission. A lot of it was it related back to my interest in affordable housing, really trying to help people get into their first homes. And also the fact that when I was at Radian, we spent a lot of time building up our business with community banks and credit unions and really trying to partner with those folks. And that was a large part of the membership at the Federal Home Loan Bank.
Peter Asch: And how'd your husband feel about... You think you went out there to enjoy retirement and quiet and all of a sudden you take on this high profile important job?
Teresa Bazemore: He's been very supportive of it. I think he recognized that it was very much in accordance with what was important to me. And so he's been very supportive.
Peter Asch: You said on stage today that you're a recovering lawyer.
Teresa Bazemore: Yes.
Peter Asch: You studied law at Columbia and actually clerked a few miles from where I currently live in New Jersey. Where did that interest in law come from? And then also how did you get involved in this intersection of lending and law that caused you to go a different direction?
Teresa Bazemore: Actually, when I was growing up I thought I wanted to be a doctor. I thought that was my way of helping people. I was a candy striper in high school, and when I got to the University of Virginia, I volunteered to work in the university hospital in the operating room. And I won't go into everything that I saw, but let's just say that I decided that I needed to rethink my future. And so I spent some time really thinking about, well, what were my skills and what would that align with? And I decided that it would align with me being a lawyer. But at the same time, I wasn't interested in litigation. I wasn't interested in being in the courtroom. And so that's how I came to the view that I should be in business in some way as a lawyer. I didn't know what that meant when I went to law school, but I knew it meant something.
And so as I was learning about different paths that you could take as a business lawyer, one of my friends was getting an MBA and started focusing on real estate. And I thought, this is really interesting. And so I started looking for opportunities, and after clerking for a year for Chief Justice Wilentz in the New Jersey Supreme Court, I joined what was then Piper & Marbury in Baltimore. They're now DLA Piper, they're a huge firm. But they were doing a lot in Baltimore with public-private partnerships, a lot of the new things that were being built, new developments, which had some public money.
It was a great opportunity to get involved in some of the multifamily housing projects. But I was really more on the commercial development side of the business, not on the residential side. As I started thinking about opportunities that were coming along to go in-house and be more involved in the business strategy of a company, one of the opportunities was with the Prudential. At the time, the Prudential was the third-largest mortgage originator in the country, and that was my introduction to the residential side of things. And I've loved it because it really, you are touching families. With each of those loans that's made you're touching a family and making home ownership and hopefully creating a better sense of security, creating a better foundation for that family and their children.
Peter Asch: There's a lot of studies that show having a secure home is so important for health, and not just mental health but physical health as well.
Teresa Bazemore: Oh, no question about it. Look, that might have been my 15-year-old way of thinking about making a difference, but I think this industry does that. And that was a huge part of my decision to come out of retirement and join the Federal Home Loan Bank because that mission around affordable housing is an important mission.
Peter Asch: General counselors are usually viewed as placeholder CEOs when a company's being acquired or maybe a turbulent period, like there was a big run on GCs to CEOs during COVID. Did you find it hard to break through the traditional C-suite from that general counsel role?
Teresa Bazemore: Yeah, so I think especially early on, I was usually a GC of a major business, but within a larger entity. Whether it was PNC or whether it was Bank of America, and I was at Nations Bank and then Bank of America after the merger. And so I was part of the C-suite team for the business, but I was still looked at as a lawyer. In my mind, two things that really helped me get to where I am in terms of the business side of things, one was I decided to go and join up with some former colleagues and do a startup. And essentially we built a mortgage platform. This was pre Ellie Mae ICE days, and we built a mortgage platform. And we were essentially... Think of us as a private label business. We didn't sell the platform but we did do loans for community banks, credit unions, other independent mortgage banks on that platform.
We sold it to MBNA. But as part of that, I learned a lot about building a business and had the opportunity to do things that were not just being one of the lawyers or even being on the management team of the business. And then when I went to Radian, I went as the general counsel, but about four months into it, I also became the chief risk officer. And I thought that that was going to be temporary. We were going to do a merger. We ended up mutually deciding not to do the merger. But I found myself with that role and I think that really teed it up, especially as we got into the financial crisis, for the request to come from our CEO for me to be president of the business. And that was about 85% of the revenue of Radian, so it was really the largest piece of Radian. So I always say that the financial crisis was the silver lining for me in terms of my career moving in that direction.
Peter Asch: I've noticed a theme. You trialed out in Los Angeles, you trialed CRO. You also trialed working with an FHL bank. You were on the board of the one in Pittsburgh.
Teresa Bazemore: Yes.
Peter Asch: Did that experience prepare you for your current role? And you mentioned earlier that the regional banks are designed to work on their specific regional issues, but are there these universal issues that you were exposed to then that you've continued to work on?
Teresa Bazemore: Absolutely. So actually, one of the things that happened when I retired was that I wanted to get on corporate boards. So, if you think about the Federal Home Loan Banks, we're really separate companies with separate boards. We're regulated by the FHFA, our stockholders are our members. And so each board is comprised of representatives from member organizations, and then there have to be a certain number of independent directors for each Federal Home Loan Bank. So I was an independent director at the Federal Home Loan Bank of Pittsburgh, and that was my first board seat on a corporate board. I had a residency requirement, though, so I had to live in Pennsylvania. So once we made the decision to move to California, I had to give that seat up. Fortunately, at that point, I had picked up a couple of other corporate boards, so I was able to continue doing that.
But that was a huge benefit for me going into this role, because while I knew about the Federal Home Loan Bank system, and even Radian when I was there, we joined as a member of the Federal Home Loan Bank system, the way it's structured, how the banks work together, we jointly raise the debt that funds our member advances through something called the Office of Finance that's based in Reston. All of us as CEOs of our individual 11 banks sit on the board of that organization, and it's the second-largest issuer of debt behind the Treasury. So, when you understand that structure, you get to learn that through being on the board, you also learn about the affordable housing program and how that's structured.
You learn more about the oversight by the FHFA. So I went into this job as someone who had not worked in the system, but as someone because of that board service who was more familiar. And it also meant that I was familiar with a couple of the other board CEOs, because I had been on the Pittsburgh board, so I knew that CEO, but also the person who had been the COO was now the CEO of the Federal Home Loan Bank of Des Moines. So it was great because I had at least a couple of bank presidents that I already knew that I was working with.
Peter Asch: Friendly faces around the table. That's fantastic. After the break, Teresa Bazemore, president and CEO of the Federal Home Loan Bank of San Francisco and I will discuss a couple topics we've been touching on; the affordable housing work you're doing, as well as the other issues in the home ownership gap. That's coming up after the break.
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Peter Asch: Welcome back. Before the break, Teresa and I were talking about her career. Back in December you wrote a article highlighting some of the underlying data of minority home ownership. I actually think your friend Bob might have stolen some of your data today on the stage, including this home ownership gap between white and black Americans that remains wider today than it was before the Fair Housing Act of 1968. How can that be, is the first question I want to ask, but then also is it too early to draw any conclusions from some of the positive trends that we've seen, as Bob said on stage today, at least 2% for black and I think two and a half percent for Latino households?
Teresa Bazemore: It's really disheartening, honestly, because I think there's so many of us who over the trajectory of our careers have tried to work on bringing more people into home ownership, and we were making progress. Unfortunately, I think that a large part of the erosion was due to the financial crisis. And it was also due to some of the predatory lending that took place in advance of the financial crisis, which also helped spur how bad the financial crisis was. So, you saw a lot of people who were able to buy a home but not necessarily in a sustainable way; they didn't necessarily have the ability to repay. And that should never be the case. You want to have someone go into a home where you know they have the ability to repay. It doesn't help them, it's not psychologically a good thing to buy a home and then lose it.
But also, people have invested their hard-earned money, whether it's the down payment, the closing costs or buying furniture. Whatever they spent to get into the home and then to set up the home, they then lose that and they lose that wealth that could have otherwise been in their bank account. So I think it's really important to understand how that happened, to your question. Then, when you look at the erosion, how do we get back to it? Some of the underwriting systems I think that we use don't necessarily fully look at someone's ability to repay. So we got a lot of people out there who are spending a lot of money on rent and they're consistently able to pay that rent. Why aren't we looking at rent and payment history on rent or other utilities? The funny part is before we had automated underwriting, we did.
And so, one of the things we've been focusing on, one of the papers that we sponsored with Urban Institute that was on automated underwriting and alternatives, we've also done a housing summit on, is to focus on are there additional databases, information that could be used as supplements? So if someone's underwritten and they don't get qualified through that normal course, is there other information that is just as helpful in terms of being able to show that they in fact have the ability to repay going forward? And so that's been one of the areas of focus. We also had a paper that came out on student lending. And because of the wealth issues, we had a situation in our country where for many years, black and brown families were sort of shut out of getting financing. Then they were able to get financing, but because you had less people who own a home and you have less time for the building of wealth during that timeframe, it's harder for black and brown families to help finance the education of their kids.
And so as a result of that, what we found is that black and Hispanic folks usually have more student debt because they've had to borrow to finish college. And that is an impediment when they're trying to get a loan because their debt-to-income ratios become too high. So, I don't know that we know a solution to that issue, but there's certainly opportunities to help with down payment assistance and other things that could potentially help.
Peter Asch: You brought up student debt. We're recording this just as Biden's plan for student debt forgiveness is going through the courts. You've been in support of that. You wrote an op-ed in 2022. Do you think that this sort of racial and diverse element is not really being considered enough as it goes through the courts?
Teresa Bazemore: The question is more of an administrative question that the courts are looking at, which is does the administration have the right to do this? And I think that as they're looking at that issue, sometimes those administrative issues become more of the focus than the true policy issues. Certainly I think the Biden administration in putting this out there was trying to address some of that, because they allow for larger forgiveness if it's a Pell Grant, and more people of color have Pell Grants. So I think there was a way of addressing it in that way. But when I clerked in New Jersey, the first case I worked on was an issue around whether or not there was fairness in education in New Jersey. And the New Jersey constitution requires that every child have a thorough and efficient education that's over and above an equal protection argument.
For many, many years, the fight had been about who gets to decide that question initially. Is it an administrative law judge or someone? And one of my arguments to the justices was, "Geez, this thing's been going on for a long time. Can't you just get to the real question, is education fair or not?" But I get it, there's a view that you have to go through these administrative steps. Hopefully, this ends up going forward in some manner because I think it will help some people be eligible to buy a home sooner than they otherwise would be.
Peter Asch: And so pivoting from something that could take years to go through the courts to basically waving a magic wand, the Department of Housing and Urban Development announced a rate cut on FHA loans recently. This is an action that'll help lower income as well as first-time buyers get into a house. Is it enough to offset the impact that higher interest rates have on home affordabilities for minority and low-income buyers?
Teresa Bazemore: Well, it's certainly a benefit. I mean, it's difficult, because the FHA's basically an insurance fund. They're there to make sure that when there are defaults, there's insurance to cover those defaults. And if you recall during the beginnings of the Great Recession, FHFA didn't have enough money in its coffers and there was a lot of risk in the system and pricing wasn't adequate. And so in many ways during that time we probably over-corrected as an industry overall on some of these things. And now we're trying to find where is the right balance so that the right amount is being charged to cover the risk going forward? There's a little bit of art to that, it's not all science, but I think that's the question. So a rate cut helps move things in the right direction. Whether that's the right number, I don't know. But I do think you have to make sure that those insurance programs are stable going forward for everyone.
Peter Asch: Talk about stability and that requires research. You mentioned the initiative with the Urban Institute. I believe it was October 2021 and it's a two-year project, so it's closer to the end than I think either of us want to admit as time flies by. How has that collaboration come along, and now that you're looking at maybe six months or so left, are you considering either extending it or expanding the scope?
Teresa Bazemore: We've got two more papers that are coming out sometime, we expect, during the course of this year. One of them is really about the use of AI and other tools and whether or not any of those embed bias in the process, or are there ways to use those tools to not have bias in the process? And then the other one is really a little bit different. It's about are there ways that we can help borrowers with short-term payment problems? And because we find that sometimes people have a short-term issue and they end up losing their house because of that short-term payment issue. So, we're hoping to get through all of that. Then we're thinking about bringing some of the ideas that we've seen and using the convening power of a bank to sort of pull those together and really start thinking about are there ways to implement those going forward.
And then we're separately taking a look at some of them. There've been a lot of new ideas that I wasn't aware of that Urban has uncovered, so I think it's been helpful and I hope it'll be helpful for others who are in the industry. And then we're looking at are there things that we could incorporate into what we're doing. So, for instance, could you use the rental information, or could you incorporate residual income scoring? And then we would still take those loans in the same way that we would take a traditionally underwritten loan. So, I think we've got to figure out what pieces of it might work in the framework of how we operate. But we are learning a lot and I'm hoping that it will help us move forward to help more people have access to home ownership.
Peter Asch: On stage today, you were talking about your own personal experience living in an older home, I think you said it was built in 1920, so before the organization you work for was even founded. How are you, and I'm not sure if this is a result of some of the research you're doing, but how are you helping homeowners overcome the step one, they have to get the mortgage. But the step two, as anyone who's owned a home knows, that on a random day you go turn the heat on and it doesn't work. And how are you helping solve that sort of acute gap that may cause someone to lose their home?
Teresa Bazemore: Currently, I think there are charitable foundations that do some things. We did a matching grant program last year called Empowering Black Home Ownership. And we gave grants to home ownership counseling agencies that our members were able to ask for and match. So, the ultimate dollars that went out to the counseling agencies was 2.22, so a little over the matching was 1.2 million. And that money went to in part help people who wanted to buy a home with counseling, but it also helped some people stay in the homes they were in. And so we do help with some home ownership counseling. We do support that.
We do a lot of down payment assistance, so through our affordable housing program, that where we give 10% of our net income. We can use 35% of that money towards down payment assistance for people who are 80% or less of the area median income. Those folks go through home ownership counseling and we see that typically those loans are more sustainable. And we believe that home ownership counseling is one of the ways. It doesn't mean, though, that you couldn't have a short term issue. So I think there's separately a question about how do you address that. But trying to help people understand the importance of preparing for those issues I think helps with sustainability longer term.
Peter Asch: And speaking of sustainability, we're in Las Vegas so I had a Nevada specific question, but it really ties into what we've been talking about. The state we're in right now is the first states require financial literacy as part of their core curriculum for everyone going to school. How does that, understanding how a bank account works, how the markets work, how buying a home works, how wealth creation works, is that having an outsized positive impact on these issues?
Teresa Bazemore: They're just getting started with this and in fact, we just hosted a housing solution summit in Reno. And the person who is running that program was in attendance. I think it's fabulous that Nevada is doing this and I've been someone who's been advocating for a long time for financial literacy in K-12. I think they're doing it in third grade through 12. And the reason is because what we've seen over time is that a lot of people get into trouble because they don't know how to manage their money. They don't know how to save, they don't know how to invest, they don't know how credit works. And so those are life skills. It would be great if people came out of high school understanding these things. And I think they would be less susceptible also to predatory issues, et cetera. And so I think we won't know until over time, but I'm also hoping that as kids are learning these things, they're teaching their parents too.
But if you want to solve the issue of financial literacy long term, the best way to do that is to do it by teaching kids over time what it means to be financially literate and financially savvy. And then you may still need counseling agencies and help, but let's hope that fewer people are getting in trouble and that people understand the importance of saving and the benefits of compounded interest, et cetera, so that as they get into their mid-twenties and late twenties they're able to buy a home and their credit situation is such that they're able to get qualified for one.
Peter Asch: We've had organizations on this podcast talking about how they wrote curriculum for high school students and then realized they had to edit it because the parents were the ones who were doing it, because they're doing the kids' homework because they didn't know and they were learning through that way. And as we begin to wrap up, we've talked a lot about different programs you're running, programs you're looking into. Is there anything else we haven't discussed yet that you're looking to either expand or better help the communities you serve with?
Teresa Bazemore: One of the things we haven't talked about is, I talked about the down payment assistance element of our affordable housing programs. But 65% of that 10% money that we use from a donation or grant perspective goes to affordable housing projects. So think about that. It could be a homeless veterans project, it could be multifamily for lower income folks. And that's a competitive process that we have. The way it's set up is that folks who are developers with our members apply for those funds. We consider them to be the last funds in, the last funds to make the project a viable, feasible project. And then we also determine what the scoring is, so it's a competitive process based on looking and researching what's going on in our district and developing each year a targeted lending plan.
And we have an affordable housing advisory council. They review it, they approve it, it goes to our board for approval, and that's how we score the projects. And so however much money there is, we continue to give projects from number one down the list until we don't have any money left. There's a lot of discussion about whether there should be an increase in the amount of money that's available for those programs and so I think we'll continue to see some dialogue about that. You were talking about us being here in Nevada. One of the challenges is that for our district, California developers are much more ahead of the game typically in terms of their capacity to do a lot of projects. They've just been doing it for a long time. And that's been a challenge for Nevada. We help through one of our head grants, which are really grants that we separately do to help with small businesses.
We helped start the Nevada Housing Conference here in Nevada. And that group helps with teaching and educating developers and others who could be doing these projects in Nevada about how to get going, how to access funding. Not just our HP funding, but funding for their projects. We gave another half million dollars to them last year to build more capacity in Nevada for developers. And in addition to that, under the FHFA rules, we're now allowed to also target a portion of the funds for a particular geographic area. So, this year we're going to have our first targeted fund for Nevada, which means that at least some of the projects in Nevada can get funding through that targeted piece and not just have to compete with California and Arizona projects. So this will be the first targeted fund amongst the Federal Home Loan Banks.
Peter Asch: So, final question, then we have to let you go, but that just made me think of it. Is this also a case where a lot of times the urban areas are pulling a lot of the resources away from rural areas, or where are these projects happening?
Teresa Bazemore: They're happening really all over. And I think we've been able to do a pretty good job of looking at the needs of our rural communities as well. But as you would imagine, quite a bit goes to urban areas, especially with the focus on homelessness. And so that draws a lot of dollars. We also focus on our Native American communities and are there ways for us to support those communities as well?
Peter Asch: Fantastic. Thank you so much for the work you're doing and for joining us Inside the ICE House.
Teresa Bazemore: Thanks for having me.
Peter Asch: That's our conversation for this week. Our guest was Teresa Bazemore, president and CEO of the Federal Home Loan Bank of San Francisco. If you like what you heard, please rate us on iTunes so other folks know where to find us. Got a comment or question you'd like one of our experts to tackle on a future show? Email us at [email protected], or tweet at us @ICEhousepodcast. I'm Pete Asch, your host, signing off from the podcast studio in the middle of ICE Experience 2023. Thanks for listening. Talk to you soon.
Intro/Outro: Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.
