NAFCU and CUNA are urging lawmakers to ensure that there is some federal guarantee of a secondary mortgage market but differ on how to achieve it.
Testifying on behalf of CUNA, State Employees Credit Union of Maryland President/CEO Rod Staatz said in testimony prepared for delivery Tuesday to the Senate Banking Committee that even if the secondary market is privatized there should be strong regulation to ensure all lenders have access to an equitable secondary market.
He added that the terms, rates and conditions for selling mortgages should be affordable and fair to all lenders, regardless of their size or charter type.
Staatz in his testimony said there needs to be “comprehensive regulations,’’ addressing safety and soundness but they must have enough flexibility to let the market operate well and innovate.
NAFCU Executive Vice President Dan Berger wrote the panel that there shouldn’t be full privatization of government-sponsored mortgage buyers. He said a strong government presence would result in competition in the secondary market and ensure equitable access for credit unions.
Berger also called for an explicit government guarantee on the payment of principle and interest of any mortgage-backed securities created by the new government-sponsored enterprises.
He added that NAFCU supports a cooperative model for these mortgage buyers and they should be self funded without a guaranteed government appropriation.
Both Berger and Staatz said lawmakers should create a system that doesn’t result in the market being dominated by a few large banks, which could put credit unions at a strong disadvantage.
Staatz also said any reform should include mechanisms to ensure the continuation of the 30-year mortgage. Without federal support, lenders would probably not offer those mortgages because they don’t want to bear the risk of fluctuating interest rates and long-term exposure to credit risk, he predicted.
He pointed out that fixed rate mortgages amount to 16.8% of assets, compared with 14.5% in 2007. Credit unions usually sell those kinds of mortgages because of interest-rate risk.
In addition, Staatz said CUNA opposed a proposed standard for Qualified Residential Mortgages (QRMs) that would exclude lenders from having to keep a 5% interest in home loans that are securitized if a borrower puts down a 20% down payment.
Although the proposal isn’t directed at credit unions, Staatz contends that it would become a template for all regulators, including the NCUA. This would “severely limit the ability of credit unions to tailor mortgage loans to meet their members’ particular needed,” Staatz said.
He also noted that credit unions have originated more mortgages in recent years. They averaged 2% of all residential first mortgages in the decade and a half before 2007 and more recently that has risen to 5.9%.
Congress and the Obama administration are looking at ways to revamp the secondary housing market after the serious problems of Fannie Mae and Freddie Mac, which caused the government to place those mortgage buyers into conservatorship.