A leading credit union executive told the Senate Banking Committee this morning that ongoing proposals to wind down Fannie Mae and Freddie Mac and privatize the secondary mortgage market would harm credit unions and other community lenders to the detriment of millions of homebuyers.
“If the government totally withdrew from the housing market, it could lead to an absence of, or at least a limited availability of, longer term (fixed-rate mortgages),” John Fenton, president of Affinity FCU, a $2 billion New Jersey credit union, told the senators. “This would cause risk to be shifted back to the consumer and the cost associated with that risk would likely drive many low and moderate income consumers out of the homeownership market.”
The New Jersey credit union executive, appearing on behalf of NAFCU, said a full privatization of the government sponsored enterprises would not only deprive credit unions and community banks of an important outlet to sell their mortgages, but also a guarantee of mortgage-backed securities, the lifeblood of the secondary market.
The testimony was part of a hearing on the future of the 30-year, fixed-rate mortgage and the role of Fannie Mae and Freddie Mac, which have both been under government conservatorship since the September 2008 height of the mortgage meltdown. Congress is debating numerous plans that would wind down the two entities and replace them with other secondary market conduits, either government subsidized or fully private.
But Fenton noted the fault in full privatization from a credit union perspective, asserting that the private label market was the first to seize up during the mortgage meltdown, leaving the government-subsidized Fannie and Freddie the only current avenues to maintaining liquidity on the secondary market. Recent data shows that more than 90% of all single-family mortgages sold on the secondary market are purchased by one of the two companies.
“Full privatization of the secondary market is not a good option because the focus will shift away from the best interest of the consumer and overall housing market, to a business' bottom line,” Fenton told the Senate panel.
“Without a government role in the secondary market, the 30-year (fixed-rate mortgage) may still exist, but likely with higher cost to the consumer and scarce availability,” Fenton said. “The system of long-term, fixed-rate mortgages financed through stable securitization has helped provide remarkable stability in the U.S. economy, as well as strong and sustainable ownership.”
