The National Association of Federal Credit Unions told leaders of the Senate Banking Committee last week that the credit union industry, which is emerging as one of the most important players in the home loan market, is opposed to any mortgage reforms that would include elimination of the federal guarantee on loans sold on the secondary market currently through Fannie Mae and Freddie Mac.
NAFCU told leaders of the Senate Banking Committee at the start of hearings on reform of the mortgage market that credit unions are concerned about any housing finance reform proposal that lacks a government guarantee now provided by Fannie Mae and Freddie Mac, as well as Ginnie Mae, the Federal Housing Administration, the Federal Home Loan Bank system and other government-sponsored enterprises.
NAFCU's concerns come after the Obama administration issued its own reform proposal that endorse a phase-out of Fannie and Freddie and the privatization of the secondary market roles the two government-supported entities perform. The plans, which have growing bipartisan support in Congress, would incentivize private entities, like the big banks, to take a growing role in the secondary market, which amounts to the buying of mortgages from retail lenders like credit unions and banks, and packaging them as mortgage-backed securities for sale on Wall Street.
The credit union lobby told the Democratic and Republican leaders of the Senate Banking Committee that credit unions are worried about a scenario where the nation's biggest mortgage lenders who already compete with credit unions and community banks to originate home loans gain control over the secondary market as well.
“It is unclear how a private market would attract investors as the housing market struggles to recover from the worst recession since the Great Depression,” Brad Thaler, senior lobbyist for NAFCU, said in a letter to the Senate leaders. “Furthermore, privatization could freeze out community based lenders by leaving the secondary market dominated and controlled by a handful of large banks. Undoubtedly, this is the worst-case scenario for credit unions and their members.”
NAFCU's concerns were aired as officials with the Obama administration were explaining its latest reform proposal to the Senate banking panel. The proposal would increase fees charged by Fannie and Freddie for guarantees on the mortgages they buy and for other services, and would eventually eliminate the two entities altogether.
This approach to the secondary market is also supported by Republicans in Congress, although the two sides disagree on how fast this should occur, with Republicans pushing for a rapid deployment. Alabama Republican Sen. Richard Shelby asked the director of the Federal Housing Administration during this morning's hearing when the White House will be presenting a formal legislative proposal for congressional action. Tennessee Republican Sen. Bob Corker told the Obama official he was disappointed the White House has yet to push forward with a bill. “I'm really disappointed in the approach the White House has taken,” said Corker.
But President Obama and congressional Democrats have stalled the reform, even as the bailout of Fannie and Freddie has exploded in cost, an estimated $150 billion so far. They worry about the impact the rapid wind down of Fannie and Freddie would have on the market because the two giants have become critical to the existence of the mortgage market—holding an incredible 90% of all single-family mortgages.
The only sure thing is that no major reforms will be enacted before November's elections.
