March 14, 2011

Draft housing reforms bad for CUs

March 15, 2011 - All three of Treasury's housing reform proposals that the Senate Banking Committee will examine today would put credit unions at a competitive disadvantage in the mortgage lending marketplace, NAFCU President Fred Becker wrote in a letter to panel leaders yesterday.

The committee holds a hearing today on those proposals. Hearing witnesses will include Treasury Secretary Tim Geithner and Housing and Urban Development Secretary Shaun Donovan.

In a March 14 letter to committee Chairman Tim Johnson, D-S.D., and Ranking Member Richard Shelby, R-Ala., Becker said Treasury's proposals would ultimately raise costs, make it harder for people to become homeowners and "could open the door for a handful of large banking institutions to dominate the secondary market."

On the cost front, Becker pointed out that the Treasury Department acknowledged in its own report that the cost of mortgage credit "would likely increase" under each of the three proposals suggested. This outcome, Becker said, "could lead to the further disintegration of the American dream of owning a home."

As Congress debates potential options for housing finance reform, NAFCU believes it is of the utmost importance to preserve a system that provides credit unions with the liquidity necessary to serve the mortgage needs of their 92 million members, Becker said. To that end, the NAFCU president said any new system must maintain a healthy and viable secondary mortgage market and uninterrupted access to that market.

NAFCU believes that credit unions must be able to continue working with Fannie Mae and Freddie Mac during the transition process, Becker continued, even if those entities are not part of the new housing system. He added that Fannie and Freddie must honor all of their loan guarantees until all current government debts are repaid. Most importantly, Becker said that "legislation to reform the GSEs should ensure that taxpayer losses are not locked in, but should allow for time for the GSEs to make taxpayers whole."

Becker said NAFCU could support a new housing system that is "consistent with a cooperative or a mutual entities model." Under such a scenario, each GSE would have an elected board of directors, be regulated by the Federal Housing Finance Agency and be required to meet strong capital standards. Becker said the GSEs should also meet other appropriate regulatory standards to limit their ability to take on risk while ensuring safety and soundness.

Other core principles that Becker outlined:

  • any new system must include more than one government-sponsored enterprise to ensure the secondary market remains competitive;
  • the government should issue explicit guarantees on the payment of principal and interest on mortgage-backed securities;
  • a board of advisors should be created to advise the FHFA about GSEs, and credit unions should be represented on the board along with other industry stakeholders; and
  • NAFCU is opposed to a full privatization of the GSEs but believes the GSEs should be self-funded, without any dedicated government appropriations.