Kenneth Clark (financial writer)
Kenneth E. Clark is an American mortgage executive and author of “The Story Behind the Mortgage and Housing Meltdown: The Legacy of Greed,” published in 2010 (ISBN 978-1-4520-5439-1). He is also the host of the housing and mortgage information radio program, “Rebuilding the Dream” on WMAL (www.WMAL.com), a Baltimore-based talk radio station owned by Citadel Broadcasting Company.
Clark is the founder and chairman of First Guaranty Mortgage Corporation, based in McLean, VA, a mortgage lender licensed in 44 states specializing in residential lending. He maintains an active management role in the company, coming out of semi-retirement prior to the mortgage meltdown to lead the firm away from the prevalent lending practices of the time, which he felt were overly risky.
Clark is a vocal proponent for financial literacy and the systemic restructuring of the country’s mortgage lending paradigms. He is a particular advocate for a balanced involvement in mortgage lending by the federal government, differing from the largely non-government participation philosophy voiced by many in Congress.
He has expressed strong support for reducing the footprint of Government Sponsored Enterprises (GSEs) Freddie Mac and Fannie Mae, but believes some forms of federal support for the industry are necessary to bring about a long-term housing recovery. He is especially supportive of the role of the Federal Housing Administration (FHA) and the Government National Mortgage Association (Ginnie Mae) in providing a means for home ownership for deserving borrowers.
Clark is especially critical of the lending establishment’s over-reliance on technology and credit scoring to render decisions. He frequently expresses the opinion in interviews that abdication of human lending judgment to technology was a key enabler of the subprime mortgage crisis.
Kenneth Clark became interested in real estate investing and finance while in his 20s and attending the University of Maryland. Already an entrepreneur, he started a small chain of health food stores in which he still maintains a partial ownership.
In the late 1970s, he opened a mortgage company with his father and later acquired a savings and loan. The company became First Guaranty Mortgage Corporation, a national lender originating over $1 billion in loans annually and licensed in 44 states.
Clark focused on the FHA lending niche as he built the company. These programs are aimed at smaller loan amounts and borrowers with modest means, but Clark found they were often the most reliable loans. These early experiences with grass roots borrowers were a strong influence on his business practices and direction throughout his career.
First Guaranty Mortgage Corporation
First Guaranty Mortgage Corporation (FGMC.com) is based in McLean, Virginia, and currently has offices in Virginia, Maryland and Florida. The company focuses on loans insured by the Federal Housing Administration (“FHA loans”), part of the Department of Housing and Urban Development, HUD. This lending niche caters to those with lower down payments and income, as opposed to conventional loans, which have no government provided mortgage guaranty insurance. Clark became an expert in FHA lending, using a broad variety of available programs to build the company over the course of almost 30 years. He also obtained approval from the Government National Mortgage Association to become an issuer of GNMA securities.
“Ginnie Mae” securities are issued by approved lenders on pools of government insured loans. Investors are insured against loss on the securities by GNMA, creating a robust secondary market for FHA and VA residential mortgages.
Clark became fascinated by what appeared at first glance to be an anomaly in mortgage underwriting’s most sacred cows: the value of credit scoring in loan decisions. Logic and conventional wisdom dictated that higher credit scores, including the FICO score, automatically meant a reduced chance of mortgage default. Clark found that his most reliable borrowers were the ones with lower scores and modest incomes, but with great motivation to own their homes as family residences rather than as investment vehicles.
Semi-retirement and return to active management
The company Clark founded in the FHA-dominated 70s and 80s branched out into "Alt" mortgages shortly before Clark decided to semi-retire to Florida in 2002. “Alt” or “alternate” types of real estate loans typically required reduced documentation and allowed for income to be stated rather than proven with pay stubs and other documents. Originally intended exclusively for self-employed persons, Alt and subprime loans were overused and helped lead to the mortgage meltdown in the late 2000s.
As Clark describes in his book, Alt loans and other types of mortgage instruments became far too readily available as income standards were relaxed in order to qualify more borrowers. The loans were easy to make and were in great demand by investors, predominantly Wall Street firms that became known as “shadow bankers” because they were acting like banks but were not subject to most of the regulations that governed traditional banking and lending institutions. The overabundance of credit caused an unprecedented overheating of the housing market, with an accompanying rise in home prices. Consumers were widely using the appreciation in their homes to buy luxury items and additional real estate, adding to the artificial “boom time” mentality felt in every sector of the economy.
Clark became more concerned as investment firms continued to buy loans that were counter-intuitive to the fundamental lending practices he had followed over the years. When these loans began to show weakness in payment reliability, the investors would demand they be repurchased. At the same time, however, these same investors were eager to buy more loans made under the same guidelines, which, despite the revenue benefits the company was experiencing, heightened the growing concerns Clark felt over these transactions.
Clark returned to the active management of the firm when he became alarmed over the direction in which the new lending trends were leading his company and the industry. They exited the Alt lending market at its height and Clark steered the company back to its roots in FHA mortgages.
Today he assists numerous national banks and mortgage investment firms in helping borrowers avoid foreclosure and maintain ownership of their homes through refinancing and loan modification strategies. He works closely with FHA, Ginnie Mae, Fannie Mae and others to bring home financing options to the FHA's under-served target communities.
Author and advocate for mortgage reform and financial literacy
Even before the mortgage crisis began, Clark became an advocate for reforming the mortgage industry. The ways in which loans were approved were especially in his sights as he observed the industry go away from human decisions and toward automated underwriting systems (AUS) such as those used by Freddie Mac and Fannie Mae. In addition, the use of three digit credit scores by FICO and the major credit bureaus led to the mortgage industry’s over-reliance on non-human decisioning, he felt.
Ken Clark’s basic lending philosophy has always emphasized the character of the borrower and their overall use of credit. Those who avoid becoming overly reliant on credit and who put some money away each month are better risks, he found, than those making more money and with large amounts of credit available. The former are more likely to keep making mortgage payments, while the latter, despite having higher credit scores, are quicker to become overextended and default on their loans.
Clark believes that most people are ethical and eager to meet their financial obligations, and that most of the problems they are experiencing today are extenuated by circumstances beyond their immediate control - including the greed of others. He tells this story in his book about the mortgage crisis, published in 2010, “The Story Behind the Mortgage and Housing Meltdown: The Legacy of Greed.” The book has received favorable comments from mortgage industry publications such as National Mortgage News, American Banker and Secondary Marketing Executive, as well as from readers on retail websites, including BarnesAndNoble.com and Amazon.com. Clark wrote the book to appeal specifically to a non-financially expert readership, feeling strongly that the mainstream has not received adequate explanation of the event and its causes.
Clark is a vocal advocate for financial literacy among all Americans, particularly for mortgage familiarity among young people. The mortgage crisis has brought tremendous negative attention on the industry and on the institution of home ownership itself, he feels. The home mortgage process is not one to be feared by the next generation of home buyers, according to Clark, especially if they understand the responsibilities it brings along with its benefits. A recurring theme in his published comments and broadcast media interviews is his belief that a healthy and vibrant real estate finance environment is among the country’s most important priorities.
- National Mortgage News, Wednesday, March 2, 2011, “Learning Something,” By Mark Fogarty
- Secondary Marketing Executive, February, 2011, “New Book Details Roots of Crisis", by Phil Hall
- American Banker, Thursday, December 9, 2010, “Voice of Authority,” by Sara Lepro