LaVaughn Henry Brings Unique Mix of Experience To His Job

Drawing on his earlier experiences from inside regulatory agencies and mortgage giant Fannie Mae, as well as other organizations, NABE member LaVaughn Henry approaches the housing crisis from a unique vantage point.

Henry has seen the housing market from inside and outside, and still some developments over the last two years have surprised him.  Some of the lessons learned are reminders of basic economic tenants, he argues.

As director of U.S. economic analysis for The PMI Group, Inc., a mortgage insurance firm near San Francisco, Henry says he believes his diverse resume has served him well as he analyzes both the national and regional housing markets.

“The position that I currently hold at PMI is the result of a `Perfect Storm’ of professional experiences that has really allowed me to bring to bear my interest in public policy, housing economics and finance at the same time,” he said in early June interviews conducted via e-mail and phone.

His career in housing economics began in the public policy arena, as he earned his Ph.D. in economics from Harvard University and headed for Capitol Hill, where he was a senior economic adviser for the House Budget Committee.  Next he took an economist position in the Federal Housing Finance Agency (formerly the Office of Federal Housing Enterprise Oversight or OFHEO), the FDIC’s Resolution Trust Company, and then to a position at Fannie Mae, where he was director of Midwest regional communications.

In these jobs and others, including a stint with Ford Motor Company first as a regulatory policy economist and then as a lobbyist, Henry said that he “intensely learned and came to appreciate the degree and methods by which public institutions can influence, for better or worse, the outcomes of private institutions and the improvement of the general welfare.”

His experience with Fannie Mae and time spent at Price Waterhouse as consultant to the Federal Housing Administration on its annual actuarial review of the MMI Actuarial Fund, were among “the most beneficial because those positions provided me with a keen awareness of how economics affected the everyday lives of Americans. The levels of premiums set, how guidelines are determined, and how outreach is done to all segments of America, deeply affect the degree of success, or failure, in extending the American dream of home ownership to all segments of society.”

Surprised at “Reluctance” To React Sooner

Conceding that “there is enough blame to go around” as to causes of the housing meltdown, Henry said he was most surprised at “the reluctance of many established financial and policy-related institutions to identify and react to the now-evident fact that the entire U.S. economy is undergoing a period of fundamental, dramatic, and systemic change.”

The foundations of the crisis, obviously, had been laid many years earlier, he noted.  “Because of this, we have had to undergo a shock therapy of dramatic institutional change in the general economy,” he said.

Asked why he thought both private sector leaders in the financial sector and public policymakers were reluctant to face the systemic problems, Henry pointed out that fundamentally, “it is hard for people and institutions to acknowledge the need for change, coupled with the fact that change brings risk, whose costs can often be quite substantial.”

There was so much at stake—linked to the notion that “prices always rise, regardless”—he said.  But, as is always the case, supply and demand factors prevail and in the aftermath of a deep and prolonged crisis, as is the case now, the market experiences a restructuring that forces homeowners and investors to adjust, often in painful ways.

“However, on a more constructive note, I have been equally amazed at the speed at which other institutions, notably the Federal Reserve Banking System, have responded strongly and dramatically during this period.  I believe that the Fed’s actions have helped lessen what was almost certain to be a much deeper recession, if not Depression.  I believe that full recovery will take a long time, but at least the bricks of that wall we hit last fall have started to come down,” he said.

Supply, Demand Still Out of Balance

The latest PMI forecast shows that the housing crisis has not yet run its course, and Henry and his colleagues expect it will be late this year or early in 2010 before housing begins to turn around.   Despite greater affordability, supply and demand of housing in most regions is still out of balance, the firm’s analysis shows. Henry forecasts “a high likelihood that another round of foreclosures will begin later this year and into 2010 as recast deadlines on option ARMs [adjustable rate mortgages] approach.”

Given the crisis and the significant policy and market shifts that have resulted, Henry said it has been important to adjust his focus as a forecaster and reassess his analytical tools. “The major factor has been the emphasis on local market analysis, versus national trend assessment.  While it might seem clichéd, it remains true that all real estate is local, as is all politics.  However, in performing analysis, it is incumbent on the modeler to assess at the local level because what drives a given MSA [metropolitan statistical area], although related, remains unique to another geographically contiguous MSA.  We have seen that in spades as market prices have declined dramatically over the last two years.”

While the data clearly show that most regions of the United Sates have “come under pressure (i.e., declining prices, excess supply, rising foreclosures) over the previous 18 months, it would be incorrect to state that the causes of the declines have been similar in all cases,” Henry said.

“Although the collapse of the subprime and Alt-A market may have precipitated the collapse in many markets, the oversupply of new homes has been the culprit in many more, and the rising supply of existing homes for sale caused by rising foreclosure rates has been the cause of weakness in many others,” he said.  “Identifying the different causes of decline, as well as their differential impacts, and proposing strategies to address these weaknesses in so many markets during a period of deep and rapid economic decline, has been especially challenging.”

New American Dream in Making

As many housing experts and policymakers have agreed, when the housing crisis abates and sales and construction pick up, the marketplace will be much different.  And the concept of homeownership will be revamped as lending is tighter and the financial sector takes to heart the lessons learned, Henry agreed.

 “What has happened to the American psyche over the last two years since the housing bubble burst has been life changing, but not life ending,” he said.  “The knowledge gained from this period in our market’s evolution is critical as we move forward in the design of new economic programs and guidelines to expand the American dream of homeownership.”

“As economists, I believe that it is up to us to design programs and convince our leaders of their merits that help people to get into homes that they can afford and, more importantly, sustain,” he concluded.

Interest in Housing Came Before Studying Economics, Finance

Even before he studied economics, Henry was interested in housing and real estate.  “I come from a family that had always owned and/or built houses and when I took my first economics course in college, my interest in the subject matter heightened even further,” he said.

While studying finance and industrial organization at Harvard, Henry said he was “profoundly influenced by the housing work of the late urban economics professor John Kain.  His example confirmed to me the importance of housing in the U.S. economy and the lives of everyday Americans.  I knew then that housing economics was where my true interest lie and that I wanted to contribute to the field in some form.”

When he joined NABE in 1991, Henry said it was, in part, because the organization “actively sought to engage and grow the input of economists in the business and policy fields.”  He has become more involved in recent years and was a presenter at the Washington Policy Conference in March of 2009, as well as a presenter to NABE chapters in California.

“I have chosen to become actively involved in the last couple of years, as I have seen that housing is becoming an ever-increasing important element to our organization and economy. I seek to continue to become involved as the organization continues to grow and affect the thought of U.S. business and policy leaders,” he added.