Mortgage finance giants lack management diversity, GAO says
The financial services industry, at least from a management perspective, is not that diverse. This is the case with federal government chartered mortgage banks and supervised mortgage finance giants Fannie Mae and Freddie Mac – known as corporations. They are all the subject of a recent look-see by the Government Accountability Office. For the highlights, Federal Drive with Tom Temin turned to GAO’s managing director for financial markets and community investment issues, Daniel Garcia-Diaz.
Tom Temin: Mr. Garcia-Diaz, good to have you.
Daniel Garcia-Diaz: Thank you for hosting me.
Tom Temin: And to be clear, you haven’t specifically looked at their diversity. But if they use the data in a way they are required to measure their own diversity and inclusion at the executive and workforce levels.
Daniel Garcia-Diaz: It’s correct. For our recent testimony for House Financial Services, we looked at how these organizations are using data to promote diversity. But some of our older work has actually looked at some of the senior management diversity characteristics of these companies.
Tom Temin: And everyone, I think, knows Fannie Mae and Freddie Mac forever as seemingly in federal receivership since the financial crisis. But the 11 federal mortgage lending banks, tell us more about who they are and how they came under federal supervision, if you will, or supervision, I guess, is a better word.
Daniel Garcia-Diaz: That’s right. Unlike Fannie Mae and Freddie Mac, they operate independently, but are overseen by the federal government, specifically the Federal Housing Finance Agency. And these federal mortgage banks, and there are 11 of them across the country, are actually a key tool in providing liquidity to the banking system so that local banks can provide mortgages and loans to consumers. Collectively, they have almost over a trillion dollars worth of assets. So it’s a big part of the financial system.
Tom Temin: So you look at their use of data in diversity. But then I guess you can’t help but look at how diverse they are at the same time.
Daniel Garcia-Diaz: Exactly. And so looking at that, what we find is a very similar pattern to what we find in the big financial markets. And that is, looking at the organization as a whole, there is some diversity in terms of race, ethnicity, and gender. But when you start to look at the different levels of the organization, especially at the senior management level, you see a decrease in diversity. And this has been a chronic concern of the committee, in part, because these are the positions that essentially set the tone, define the policy and the strategic direction of these companies. And there is growing interest in having demographics at this level of the organization reflect the population to the extent possible.
Tom Temin: Because between the use of data and the actual change in the composition of the top-level workforce, something else has to happen because, as the old saying goes, you don’t fatten the pig by weighing it.
Daniel Garcia-Diaz: Exactly. So you have to need some diagnostics first, right? What is happening? What is the shape of an organization? Why does it look like this? And in particular, when you think of those positions at the top level, it has to do with the people who stay in your organization long enough to be promoted. Are they leaving for various reasons? And that’s where the data comes in. It lets management know what’s going on. Do I have a leak in my pipeline, where I have skilled and talented minorities or women leaving my organization? And that leads to the kind of information you need. So part of it is quantitative, I need to know it’s just percentages and things like that. But there is another part of it, you have to know qualitatively what is going on here. And so, one of the things and the institutions that we looked at do that, which is that they use employee surveys, or they do exit interviews for people who are leaving. And all of this provides a narrative so that we can make sense of the numbers we see. And we can actually diagnose what the problem is and tailor a response to fix it.
Tom Temin: And I want to come back to some of those measures and some statistics. but I also wanted to ask, is there any evidence that the composition of the boards of directors and the top management of these institutions, the 11 banks and the to Fannie Mae and Freddie Mac? Does this have an effect on the loans and the fairness of their practices vis-à-vis the public who do business with them?
Daniel Garcia-Diaz: Yes, we haven’t empirically examined this to try to make that determination. But in our interviews with leaders of these organizations, advocacy groups, and others, they cite that there is a potential that the demographics of your leadership in their organizations could translate into the development of products that might not meet. to the entire population that these companies serve. So the idea is really to bring a diversity of background experiences and thoughts that help inform and shape the way these companies do business.
Tom Temin: Because at the lower level, say individual loan officers where there could be more diversity, it would seem that if it is the people who make the initial yes who agree to a loan application, than if this Workforce to use the common phrase sounds like the audience it serves, so you shouldn’t have a problem.
Daniel Garcia-Diaz: You might think, but if at the top level you don’t focus on how customers can be treated differently, maybe getting products at different prices, and things like that, it might cause some disparity in the services offered to the client. based.
Tom Temin: Okay, so getting back to data analytics and data usage, there’s one more measurable aspect that you haven’t mentioned, and that’s not necessarily whether people are quitting. before reaching the higher levels – but are there certain groups, say women or people of color existing at this level of junior vice president for a long time, instead of rising with everyone in proportions that would be expected in a random sample of a population?
Daniel Garcia-Diaz: It’s correct. So one of the things we can do with the data that we analyze coming from the Equal Employment Opportunities Commission is to look at that top-level management area and then take it to the next level. divide between lower management, sort of those junior positions that report to management. , but they are certainly not in the top category. And then the higher level, of course, is things like what we normally call the C suite, and those kind of very high level positions. And again, in the data, we see a real decline from the lowest mid-level management positions to the executive positions. And so we see, for example, like the Federal Home Loan Bank and the Fannie and Freddie Mac, that typically for those leadership positions, typically 33% are women and about, say, 21%, are in the minority. And that’s a big drop from what we’re seeing at the mid-level.
Tom Temin: And have you had any recommendations, from the statistical base, that institutions and government need recommendations to translate that into more diversity over time at higher levels?
Daniel Garcia-Diaz: Yes. So when we look at the oversight that federal agencies provide, specifically the Federal Housing Finance Agency’s oversight on these government sponsored businesses, they take a lot of steps to oversee the efforts of regulated institutions. And it is, in some ways, quite robust. But we had in one of our reports and recommendations actually related to data collection and advice. Council members therefore do not always declare their ethnicity. And so it’s hard to tell if they didn’t report because they didn’t want to, or was it because the data collection process was spotty or poorly executed by the federal mortgage lending banks in this case. We therefore recommended that the FHFA take steps to collect information on how banks collect information and share best practices so that people do not have to disclose this information to their employer or the board of directors. But as far as they want, we shouldn’t let a bad data collection process get in the way, because a lot of people want to know what the makeup of the board is.
Tom Temin: Lots of moving parts here. Daniel Garcia-Diaz is Director General of Financial Markets and Community Investment Issues at the Government Accountability Office. Thank you very much for joining me.
Daniel Garcia-Diaz: Thanks, Tom. Always a pleasure.