A leading credit union expert told Congress that credit unions and other community lenders should have a major role in creating and overseeing a proposed federally backed secondary mortgage market agency in the case of a wind-down of Fannie Mae and Freddie Mac.
“As Congress considers housing finance reform, it is critical that credit unions have equitable and readily-available access to a functioning, well-regulated secondary market,” Bill Hampel chief economist for CUNA, told the Senate Banking Committee, which is studying a bipartisan proposal that would wind down Fannie and Freddie by privatizing much of their functions, but create another government backstop in its place.
The Senate hearing just came as the House Financial Services Committee was voting to endorse its own Fannie and Freddie plan that would also wind down the two troubled mortgage giants—but without a government backstop. That plan now goes to a vote by the full House.
Hampel and other witnesses from the Independent Community Bankers of America and the American Bankers Association expressed fear that a full privatization of the secondary market would leave credit unions and other community banks at the mercy of a handful of banks that already dominate the mortgage market.
Hampel asked Congress to reserve a seat for credit unions on the five-member board that would oversee a Federal Mortgage Insurance Corp. which would guarantee residential mortgages and supervise the secondary market under the Senate scheme.
The CUNA economist explained that as mortgage lending has grown to new heights at credit unions, so has the necessity to access the secondary market—which comes almost exclusively through Fannie and Freddie, who now buy 59% of all credit union home loans. Virtually all the mortgages sold to Fannie and Freddie are packaged then resold as federally guaranteed mortgage backed securities on the secondary market, much of it to credit unions. Credit unions now hold almost $150 billion of MBS, almost all of it guaranteed by the federal government through Fannie and Freddie.
Hampel set several conditions for credit union support of a secondary market reform:
- Equal and unbiased access to the secondary market for lenders of all sizes.
- A strong regulator to ensure safety and soundness, standardization within the system and guarantee equal access.
- An ability to provide liquidity in all economic times.
- Reasonable conforming loan size limits that take into consideration variations in local real estate costs.
- The ability of credit unions to retain the servicing rights of their members mortgages when sold on the secondary market.
