Housing Finance Reform

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Updated July 2014


It has been over 5 years since the federal government took control of Fannie Mae and Freddie Mac from their stockholders in a process known as conservatorship. Since that time the future of the government-sponsored enterprises and the secondary mortgage market has become a topic of debate among lawmakers and the Administration.

The development and reform of federal policy pertaining to housing finance is highly significant for credit unions and has been a focus of lawmakers in the 113th Congress. In July 2013, House Financial Services Chairman Jeb Hensarling (R-TX) presented the committee with draft legislation called the, "Protecting American Taxpayers and Homeowners (PATH) Act." While the legislation, subsequently introduced by Scott Garrett (H.R. 2767), would make significant positive reforms to mortgage rules being promulgated by the Consumer Financial Protection Bureau, it would also phase out Fannie Mae and Freddie Mac over a five-year period and seriously curtail the government's role in the housing finance system. NAFCU was invited to testify before the committee on the PATH Act, and Janice Sheppard of Southwest Airlines FCU reiterated to lawmakers how critical secondary mortgage market access is for our nation's credit unions. Ms. Sheppard also testified that any future system must ensure credit union loan quality is taken into account and larger lenders don't receive deep discounting based on mortgage volume as opposed to quality.

While NAFCU has outstanding concerns about the PATH Act, which was passed out of the Financial Services Committee on July, 2013, NAFCU will continue to work with Chairman Hensarling and other interested parties as the bill could be considered on the House floor this Congress.

In August 2013 President Obama outlined core housing goals of the Administration and urged Congress to come together and deal with this issue in a bipartisan way. Of significance, he advocated for maintaining consumer access to products such as the 30-year fixed rate mortgage and noted that credit unions and other small institutions "must be given the same opportunity to compete in any future system to ensure that consumers have the broadest number of options.”

In the Senate Banking Committee, Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) focused on an FHA solvency measure earlier in the Congress and have now turned their attention to larger housing finance reform issues. A bipartisan group of Banking Committee members put together a housing finance reform bill introduced in June 2013. The Housing Finance Reform and Taxpayer Protection Act (S. 1217) championed by Bob Corker (R-TN) and Mark Warner (D-VA) would wind-down Fannie Mae and Freddie Mac and replace the GSEs with a privately capitalized system that aims to preserve market liquidity and protect taxpayers from future economic downturns. Of note, the bill does include a narrow government guarantee on MBS and would create a small lender mutual to help ensure credit union access to the market. In November NAFCU was invited to testify before the committee on housing finance reform issues from a small lender perspective and John Harwell of Apple FCU noted that the Corker-Warner legislation is a good first step in the debate. At the hearing Mr. Harwell reiterated how important credit union access and fair pricing for credit union loans are should reforms be made to the secondary mortgage market.

In March 2014 Chairman Johnson and Ranking Member Crapo released a discussion draft of legislation that reflects key items found in the Corker-Warner bill while taking into account concerns from various stakeholders in the marketplace, including NAFCU. NAFCU continues to work with interested parties on mitigating concerns about how the proposal would impact small financial institutions. Specifically, NAFCU is concerned about the costs stemming from the system envisioned in the proposal, and how this untested idea would actually function in the marketplace. Committee consideration of the Johnson-Crapo proposal officially began on April 29, and NAFCU continues to work with Senate staff and the Administration as the process moves forward.   

The Government Sponsored Enterprises (GSEs), specifically Fannie Mae and Freddie Mac, enable credit unions to obtain the necessary liquidity to create new mortgages for their member-owners by utilizing the secondary market. In addition, the Federal Home Loan Banks (FHLBs) allow credit unions to meet their liquidity needs through timely loans. The availability of these stable and reliable sources of funding has facilitated credit unions' ability to offer new mortgage loans and related credit to their members, many of whom have been denied access to homeownership by other lenders. Thus, both GSEs and FHLBs serve as valuable partners in credit unions' efforts to meet their members' needs, particularly with regard to mortgage loans. This continues to be true in the current economic environment.

After turmoil in the housing, mortgage, and financial markets raised doubts about the future of Fannie and Freddie, both entities were placed under conservatorship in September 2008. Lawmakers also created the Federal Housing Finance Agency to replace the Office of Federal Housing Enterprise Oversight as the safety and soundness regulator for the GSEs. The goal of conservatorship is to preserve GSE assets and return to sound financial condition, allowing the conservatorship to end.

The FHFA has come under political pressure to shift its policy on principal forgiveness for certain underwater borrowers whose loans are owned or guaranteed by Fannie Mae or Freddie Mac. NAFCU has expressed concerns about this policy to the extent that it could enable or precipitate strategic defaults. Credit unions stand on the forefront of the battle to keep families in their homes and NAFCU has deep concerns about any government program that would encourage some borrowers that have the ability to repay to instead walk away from their home and cause credit unions and their members losses that cannot be recouped. On a related note, in January 2014 longtime House Financial Services Committee member Mel Watt (D-NC) was confirmed by the Senate to head the FHFA. Watt replaced Acting Director Ed DeMarco.

As discussions about housing finance reform continue in the 113th Congress, NAFCU is committed to educating Congress and the Administration about the positive impact the secondary market has had on the credit union community and the role credit unions play in ensuring the safety and soundness of our nation's housing market.

Housing Finance Reform Policy Letters

4-28-2014 NAFCU letter to Sens. Johnson, Crapo on Housing Reform Markup 

4-11-2014 NAFCU-ICBA-CUNA joint letter to Sens. Johnson, Crapo on GSE reform

7-22-2013 NAFCU letter on Housing Finance hearing

6-17-2013 NAFCU letter regarding QM rule

6-11-2013 NAFCU letter to HFSC regarding GSE hearing 

5-20-2013 NAFCU letter on Qualified Mortgages: Examining the Impact of the Ability-to-Repay Rule

5-13-2013 NAFCU letter on Senate Banking hearing regarding GSEs

5-03-2013 NAFCU letter in support of H.R. 1077 The Consumer Mortgage

4-17-2013 NAFCU letter on FHFA hearing

3-18-2013 NAFCU Comment letter on Senate Banking hearing, " Bipartisan Solutions for Housing Finance Reform."

3-05-2013 NAFCU Comment letter on GSE hearing

2-27-2013 NAFCU Comment letter on Addressing FHA's Financial Condition and Program Challenges, Part II" Hearing

2-5-13 Role of the FHA in Housing Finance

1-25-2013 The Role of the Federal Housing Administration in Housing Finance

12-11-12 Corker Vitter Strategic Default Letter

3-14-12 Menendez-DeMint Housing Reform Process Comment Letter

2-8-12 Johnson-Shelby State of the Housing Market

10-20-11 Housing Finance Reform Hearing: "The Continuation of the 30-Year Fixed-Rate Mortgage" Testimony  

7-11-11 Garrett-Waters Fannie and Freddie Legislation Mark-Up Comment Letter

6-27-2011 Johnson-Shelby Housing Finance Reform for Small Financial Institutions Comment Letter

5-25-11 Johnson-Shelby Housing Finance Reform Comment Letter

4-4-11 Garrett-Waters Housing Finance Reform Comment Letter  

3-30-11 Garrett-Waters Housing Finance Reform Comment Letter

3-14-11 Johnson-Shelby Housing Finance Comment Letter

2-8-11 Garrett-Waters GSE Housing Finance Comment Letter  

12-7-10 Dodd-Shelby GSE Housing Finance Reform Comment Letter 

12-7-10 Frank-Bachus GSE Housing Finance Reform Comment Letter 

4-19-10 Dodd-Shelby FHLB Comment Letter 

3-22-10 Frank-Bachus GSE Comment Letter 

2-04-10 Dodd-Shelby-Frank-Bachus GSE Comment letter