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Nov. 6, 2013 – NAFCU witness John Harwell of Apple FCU testified on Tuesday before the Senate Banking Committee on the need for housing finance reform to ensure credit unions have an explicit government guarantee for unfettered access to the secondary mortgage market.

Harwell is the associate vice president of risk management at Apple FCU in Fairfax, Va. In prepared testimony for the hearing, "Housing Finance Reform: "Protecting Small Lender Access to the Secondary Mortgage Market," he urged lawmakers to support a government guarantee on the payment of principal and interest on mortgage-backed securities and to ensure secondary market access for credit unions. He also urged that any reform ensure fair pricing based on the quality of loan underwriting, not volume.

"NAFCU and its member credit unions have examined various proposals for reform of the housing finance system and have reached the conclusion that we cannot support any approach that does not maintain an explicit government guarantee of payment of principal and interests on mortgage backed securities," he said. "The explicit guarantee will provide certainty to the market, especially for investors who will need to be enticed to invest in the MBS and facilitate the flow of liquidity in times of economic uncertainty. We think the approach found in S. 1217 where private capital stands in front of the guarantee is workable, and believe this type of approach offers a viable public-private solution."

All of the witnesses – representing institutions such as the Independent Community Bankers of America and the Mortgage Bankers Association – emphasized the need for smaller lenders to be on equal footing with their larger competitors. Other themes in the suggestions for reform were to evaluate loans based on quality instead of volume, to ensure consistency and stability during the reform transition, and to maintain predictable costs for financial institutions.

Harwell emphasized that NAFCU believes the $15 billion cap for participation in the mutual outlined in S. 1217, the "Housing Finance Reform and Taxpayer Protection Act of 2013," authored by Sens. Mark Warner, D-Va., and Bob Corker, R-Tenn., should be "substantially higher" if entities are going to be able to generate enough volume to ensure liquidity.

Warner noted the small window available for housing finance reform and requested comments and suggestions from the witnesses about how the reform and transition should take place as soon as possible.