April 11, 2014

NAFCU weighs in on housing finance reform draft

April 14, 2014 – NAFCU President and CEO Dan Berger and the CEOs of the Independent Community Bankers of America and CUNA on Friday jointly reminded Senate Banking Committee leaders of the need for small institutions to have equal, competitive access to the secondary mortgage market in any future housing finance system.

In a letter to committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, the chief sponsors of a draft reform measure currently under discussion, the trade leaders also urged lawmakers to be mindful of the costs of transitioning to a new housing finance model.

The Johnson-Crapo draft is set for committee mark-up April 29. If it gets through committee, the next step will be action by the full Senate, which could take some time as this year's schedule is winding down. The housing finance reform discussion is ongoing.

The draft "Housing Finance Reform and Taxpayer Protection Act" calls for a wind-down of Fannie Mae and Freddie Mac and creation of a new mortgage insurance entity, the Federal Mortgage Insurance Corp., which would be authorized to create one or more mutual companies to facilitate access for lenders, including small lenders like credit unions, to the secondary mortgage market. It also sets up a series of new fees and plan for transferring Fannie and Freddie funds to help capitalize the new entity.

The letter to Johnson and Crapo makes seven recommendations for the draft plan:

  • that entities not be approved guarantors if they are aggregators or originators (otherwise, large depositories would dominate the market;
  • that the FMIC allow only approved guarantors with adequate capital to access its guarantees;
  • that the FMIC have safety and soundness examination authority for approved aggregators, originators, and servicers that are non-depositories or subsidiaries of an insured depository with more than $500 billion in assets (indexed over time), but rely primarily on prudential regulators for examinations and reviews of insured depositories with assets of $500 billion or less;
  • that the 14-member FMIC board include two credit union members and two community bank members, and that the nine-member board for the new Common Securitization Platform (for aggregators) have one member from each;
  • that the statutory definition of "qualified mortgage" be revised to allow community lenders more flexibility in evaluating borrowers' ability to repay;
  • that lenders be required to notify senior lienholders of any covered loan in the case of junior liens when the combined loan-to-value ratio exceeds 80 percent;
  • that institutions under $500 billion in assets and already approved to sell loans to Fannie and Freddie be able to join the new mutual under a streamlined approval process.

Berger and the others also thanked the committee leaders for their "exceptional outreach" efforts on housing finance reform.