Johnson keeps focus on 30-year mortgage

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Dec. 11, 2013 – Senate Banking Committee Chairman Tim Johnson, D-S.D., reiterated the need to ensure continued availability of a 30-year, fixed-rate mortgage in Tuesday’s housing finance reform hearing with witnesses from Fannie Mae, Freddie Mac and others.

During his opening statement, Johnson said, “When considering options for expanding private capital’s role in the secondary mortgage market, I believe the structures should be compatible with the TBA [to-be-announced] market in order to ensure continued availability of the 30-year fixed-rate mortgage.” He noted particular concern that “responsible homebuyers are not priced out of the market.”
Tuesday’s hearing focused largely on capital requirements and risk-sharing components of the current and new housing finance reform system.

Committee Ranking Member Mike Crapo, R-Idaho, said private capital must be placed before the government guarantee and noted several ideas in S. 1217, the “Housing Finance Reform and Taxpayer Protection Act of 2013,” including credit-linked notes and private mortgage insurance.

Johnson asked if the 10 percent capital ratio required by S.1217, which is the amount of private capital at risk before a government guarantee kicks in, was too high. Sandeep Bordia of Barclays Capital said capital levels need to strike a balance between protecting the taxpayer and decent returns.

Sen. Jon Tester, D-Mont., noted that S.1217 would give the director of a new Federal Mortgage Insurance Corporation flexibility in setting credit-risk transfer standards. Sen. Bob Corker, R-Tenn., asked whether such flexibility is key or if Congress should be more prescriptive. Freddie Mac Vice President Kevin Palmer said there is a need for many credit-risk sharing options and that flexibility is important. Fannie Mae Vice President Laurel Davis agreed.

Sen. Elizabeth Warren, D-Mass., said if investors are taking on credit risk, they want to know exactly what they are getting, and he said investor confidence is critical for credit unions, banks and other lenders. If bond insurers are ultimately covering risk, as it would be compatible with the TBA market, they need to have adequate oversight.

NAFCU is urging Congress to preserve credit unions’ guaranteed access to the secondary mortgage market in any iteration of housing reform and to ensure fair pricing based on loan quality instead of volume. NAFCU witness John Harwell, vice president of risk management for Apple FCU, reiterated that in a hearing held last month.

Related Links:
"NAFCU presses CUs’ access to secondary mortgage market" 11/5