Professor Says CUs Should Back GSEs’ Privatization
A professor of law at Brooklyn Law School argued that credit unions should back the privatization of Fannie Mae and Freddie Mac, provided they can also ensure they get the same access to a privatized secondary mortgage market that banks would get.
The professor, David Reiss, laid out his reasoning in "Fannie Mae and Freddie Mac: Implications for Credit Unions," a research paper underwritten and published by the Filene Research Institute.
Reiss also touches upon nationalization as an option, one which has been put forward by a number of politicians and economists. Under this option, the GSEs would be effectively merged into the Department of Housing and Urban Development’s Federal Housing Administration, which already insures many U.S. mortgages. But this approach should leave credit unions very cautious, he wrote.
"Credit unions and small mortgage lenders would have to watch the development of any such plan with the greatest of care," Reiss wrote. "Significant changes in their operations and those of their competitors could be easily worked into such a large-scale change to the housing finance system, either intentionally by lobbyists or unintentionally (as happens with all revolutionary changes to something as complex as the housing finance system). The greatest concern for credit unions would be to protect their competitive position relative to larger financial institutions."
Credit unions might find the option of leaving privatized, reformed GSEs alone while chartering many more firms that could make up a private secondary mortgage market attractive, provided they could make sure that they had access to that market. Keeping that access might be easier, as credit unions might be able to establish a CUSO that could provide them access to that market, or a vendor interested in the higher quality mortgages credit unions have generally issued could make a niche out of them.
The approach of reforming the GSE's but then regulating them as public utilities could also attract CU support, but Reiss noted that it would require a very strong and perceptive regulator.