Newsroom

November 19, 2014

Watt: Fewer than 100 FIs directly affected by FHLB proposal

Federal Housing Finance Agency Director Mel Watt told members of the Senate Banking Committee yesterday that fewer than 100 financial institutions might be adversely affected under the agency's proposal to adjust membership criteria for the Federal Home Loan Banks.

Watt was responding to a question from Senate Banking Chairman Tim Johnson, D-S.D., who also thanked Watt for extending the comment period on the proposal to Jan. 12. Watt said FHFA is reviewing the comment letters received so far and taking those comments into account. He said about 7,500 institutions have membership in the FHLB system.

NAFCU's Senior Regulatory Affairs Counsel Angela Meyster noted that Watt's answer only addressed the number of current FHLB members that would be impacted and doesn't take into account that "the proposal has the potential to impact many more institutions that could potentially join FHLBs, so it could have a broader impact."

Wednesday's hearing, held to address FHFA operations, also spurred talk of guarantee fees, mortgage insurance, principal reduction, the overall state of the housing system and the future of government-sponsored enterprises – specifically Fannie Mae and Freddie Mac.

Principal reduction
Both Senate Banking members Robert Menendez, D-N.J., and Elizabeth Warren, D-Mass., questioned Watt on why he had not implemented principal reduction to help underwater homeowners. Watt told Menendez that he has not taken "responsible" principal reduction off the table but that it is a difficult issue. Warren asked Watt why the issue wasn't a priority for him. He said it was a priority and that he is looking for a win-win solution.

NAFCU, in past and ongoing conversations with FHFA, has warned that principal reduction for homeowners in arrears could encourage current borrowers who have underwater mortgages to strategically default so they qualify for the reduction. In a letter to Watt on Wednesday, NAFCU Senior Vice President of Government Affairs and General Counsel Carrie Hunt reiterated this stance.

"There is a very real risk that incorporating principal forgiveness modifications into borrower assistance programs will create an incentive for at least some borrowers to strategically default, causing credit unions, and as a result their members, significant losses that they will not be able to recoup," Hunt wrote.

Guarantee fees
Watt told committee members that they can expect more clarity on guarantee fees in the first quarter of 2015. Writing the committee ahead of Wednesday's hearing, Hunt wrote, "Raising g-fees would result in a negative impact on the housing market. The cost of borrowing will greatly increase and lending will inevitably slow down."

Housing finance reform
Watt told committee Ranking Member Mike Crapo, R-Idaho, that conservatorship of Fannie Mae and Freddie Mac cannot and should not be a permanent state and that it is up to Congress to decide what the permanent state should be.

NAFCU holds that in any housing finance reform plan, credit unions' equal access to the secondary mortgage market should be preserved, along with fair pricing based on loan quality rather than volume.