October 03, 2017

Watt: GSEs need to rebuild capital buffers

Federal Housing Finance Agency (FHFA) Director Mel Watt told the House Financial Services Committee Tuesday that it would be "irresponsible" for the government-sponsored enterprises (GSEs) to not be allowed to rebuild their capital buffers – a view shared by NAFCU.

The GSEs' capital buffers will be cut to zero as of Jan. 1. Meaning, if there are any losses experienced at either Fannie Mae or Freddie Mac, the GSEs would have to draw on their line of credit from the Treasury Department, thereby forcing taxpayers to make up the difference.

The GSEs were placed into conservatorship following the 2008 financial crisis. As part of an agreement between the Treasury Department and the FHFA, the GSEs are required to send all of their income to the Treasury. During Tuesday's hearing, Watt said he and Treasury Secretary Steven Mnuchin were working together to avoid going to taxpayers for financial help.

Allowing the GSEs to rebuild their capital buffers is a key part of the NAFCU's housing finance reform principles. This would better protect the housing finance system and provide for more liquidity, allowing credit unions to make more loans to their members.

Watt also said during Tuesday's hearing that the GSEs' use of alternative credit scores would do little to improve access to credit since "both Fannie and Freddie are using information other than credit scores to increase access to credit anyway" during an exchange with Rep. Jim Himes, D-Conn. Rep. Brad Sherman, D-Calif., also questioned Watt on the subject. Watt did say, however, that he is still looking into the use of alternative credit scores.

Recently, Senate Banking Committee members Tim Scott, R-S.C., and Mark Warner, D-Va., introduced the NAFCU-supported Credit Score Competition Act, S. 1685, which would authorize the FHFA to set standards and criteria for any process used by the enterprises to validate and approve credit scoring models. NAFCU President and CEO Dan Berger met with Scott to discuss this bill.

Also during Tuesday's hearing:

  • Rep. Keith Ellison, D-Minn., talked about the importance of Community Development Financial Institutions (CDFIs) and the need to expand the program and its funding. In response to a question, Watt agreed that allowing non-depository CDFIs to "pledge their loans to a Federal Home Loan Bank" would allow those CDFIs to provide more loans, in turn improving economic development in underserved communities.
  • Rep. Tom Emmer, R-Minn., asked if Watt agreed with the recent Treasury report that noted disincentives for small community financial institutions, such as credit unions, to provide mortgage loans. Watt said that he does agree that these disincentives exist.
  • Rep. Andy Barr, R-Ky., asked Watt if he would be supportive of legislation like the NAFCU-backed Portfolio Lending and Mortgage Access Act (H.R. 2226) that would exempt institutions like credit unions from the CFPB's qualified mortgage (QM) rule. Watt did not weigh in on the bill, but said credit unions have the ability to provide loans outside QM, but they do not have a safe harbor.

NAFCU continues to advocate for housing reform that guarantees access for credit unions to the secondary mortgage market, and fair prices based on loan quality rather than volume.