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The need to preserve access to the secondary market for credit unions in any housing finance reform plan was among several key issues on display during a Senate Banking Committee hearing Thursday featuring witnesses from the financial services industry.

Ahead of the hearing, NAFCU shared its principles for housing finance reform with committee leaders. Thursday's hearing included testimony from David Stevens, president and CEO of the Mortgage Bankers Association (and formerly head of the Federal Housing Administration); Edward DeMarco, president of the Housing Policy Council of the Financial Services Roundtable (also former Federal Housing Finance Agency acting director); and Michael Calhoun, president of the Center for Responsible Lending.

Calhoun, in his opening statement, said housing finance reform will only work if credit unions and community banks continue to have access to the secondary market.

Sen. Bob Corker, R-Tenn., said he believes the Senate can pass housing finance reform legislation this year. He added that the general consensus seems to be that housing finance reform must include an explicit government guarantee, involve private capital and allow access to secondary markets by entities of all sizes. Reform also must be simple, he said.

Calhoun aired concerns with the Ginnie Mae model with respect to small community lenders because it forces them to sell their loans, whereas now they can use the cash window and hold onto those loans on their books. He added that the cash window must be maintained, which allows lenders to sell their loans to Fannie Mae and Freddie Mac directly in exchange for cash – a help to community-based institutions. Stevens said fair pricing for financial institutions of all sizes must be a part of the system.

Sen. Heidi Heitkamp, D-N.D., asked about expanding the role of the Federal Home Loan Banks to act as aggregators for small loans. Stevens said he worries about whether small lenders can get effective pricing from the FHLBs. Calhoun said the FHLB model is helpful, but not sufficient. He noted the need to preserve the cash window as well as the low-income housing tax credit.

There was a bipartisan discussion during the hearing regarding a legislative amendment to allow the FHLBs to begin securitizing loans and to create a system that would be the equivalent of a cash window for them. If enacted, this would potentially allow credit unions that are not FHLB members to sell their loans to the FHLBs for cash and have access to the secondary mortgage market. NAFCU has asked that the FHFA consider encouraging a legislative change to allow the FHLBs to securitize loans to help credit unions participate in front-end credit risk transfer transactions.