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NAFCU President and CEO Fred Becker thanked Senate Banking Committee members Bob Corker, R-Tenn., and David Vitter, R-La., Tuesday for addressing the Federal Housing Administration's three-year lockout periods and its impact on the housing market at a hearing last week, noting the issue warrants further review.

At the hearing, held by the Senate Banking Committee, Corker and Vitter both expressed concerns about the FHA's three-year lockout period, which is much shorter than the seven-year lockout period for Fannie Mae and Freddie Mac. The FHA's lockout policy means that a borrower who defaults on a mortgage backed by the government-sponsored-enterprises can obtain an FHA loan after only three years.

Becker pointed out that the FHA lockout policy "fails to provide adequate disincentive against strategic default in the housing market," and ultimately promotes the FHA "as the place to obtain another loan even after a borrower fails to meet previous obligations, which in the case of mortgages backed by the GSEs, become obligations to the taxpayer."

Becker pointed out that NAFCU has urged changes in FHA's lockout period to discourage strategic defaults on mortgages, as outlined in a letter the association sent to the Department of Housing and Urban Development in February. Becker included a copy of the letter for Corker and Vitter.

The increasing trend of strategic defaults is troubling to community based financial institutions like credit unions, Becker said, and "should not be tolerated under the housing policies of the federal government," he wrote.

Becker added that NAFCU is hopeful the issue will continue to be examined, including looking further into the impact on credit unions and other community based financial institutions.

• Dec 7 NAFCU Today story, "Donovan says FHA taking steps to avoid bailout"
• NAFCU letter to HUD on strategic defaults