A housing finance reform bill unveiled by House Republicans July 11 would wind downFannie Mae and Freddie Mac and also contains a number of regulatoryrelief provisions, including tweaks to the CFPB's qualifiedmortgage rule and exam reform.

The Protecting American Taxpayers and Homeowners Act, which hasnot yet been introduced but is championed by House FinancialServices Committee Chairman Jeb Hensarling (R-Texas), would replaceFannie Mae and Freddie Mac with a nongovernmental, not-for-profitentity. Both Fannie Mae and Freddie Mac would be eliminated withinfive years by shrinking their securities portfolio by 15% peryear.

The National Mortgage Market Utility proposed by the bill wouldbe regulated by the Federal Housing Finance Administration, butunlike the GSEs, it would not guarantee mortgages. Instead, itwould take over the current GSE origination platform and convert itinto an “open access common securitization platform.”

According to a summary of the bill released by the committee,both qualified mortgages and nonqualified mortgages could besecuritized through the utility. The bill also addresses a concernof credit unions: fees based on the size, business line,composition or loan volume of the issuer would be forbidden.

CUNA President/CEO Bill Cheney addressed that provision in aJuly 17 letter to Hensarling, saying credit unions “should be ableto sell one loan at a time and not be discriminated against in themarketplace merely because the volume of loans an individualinstitution can annually sell may be smaller.”

Cheney also noted the provisions that would allow the utility tosecuritize both QM and non-QM would also help ensure continuedcredit union access to the secondary market.

However, Cheney expressed concern about a provision that wouldauthorize any Federal Home Loan Bank to aggregate mortgages forsecuritization through the platform. Although the CUNA leader saidhe supports using the FHLBs as aggregators, some credit unions findit difficult to becoming home loan bank members. Privately insuredcredit unions are prevented from doing so by law.

“As this legislation moves though the House we would appreciatethat more thought be given as to how credit unions can more easilygain membership to the FHLB system, including the addition oflanguage permitting privately insured credit unions to join aFHLB,” Cheney said.

Cheney also addressed an issue that both credit unions and bankshave expressed regarding housing finance reform, the future of the30-year, fixed mortgage.

Privatization of the secondary mortgage market could favoradjustable rate loans, because private investors would be lesswilling to take on the interest rate risk, particularly in alow-rate environment.

“CUNA has serious concerns that the PATH Act may not providecredit union members with a sustainable secondary market that canprovide the necessary liquidity and structure which will ensure thecontinuation of long term fixed rate mortgage products,” Cheneysaid. This is of particular concern for credit unions because morethan 83% of credit union mortgages issued since 2008 have beenfixed-rate mortgages; this signifies particularly strong memberdemand for a fixed-rate mortgage product.”

A privatized market could result in a significant price increasefor fixed mortgages, Cheney said, and coupled with the risk ofholding long-term fixed loans on credit union balance sheets,credit unions may stop offering the product.

Title IV of the bill includes a number of items on credit unionregulatory relief wish lists. For example, one section wouldexclude a number of items from the qualified mortgage 3% cap onpoints and fees that make compliance unprofitable for some credit unions. Title charges, loanofficer compensation, escrow charges for taxes and insurance,lender-paid compensation to a correspondent bank, credit union ormortgage brokerage firm, and loan-level price adjustments chargedby Fannie or Freddie to offset risk factors would all be excludedfrom the cap under the bill.

The bill would also permit 40-year mortgages to qualify asqualified mortgages, waive some mortgage disclosure requirementsand delay implementation of CFPB mortgage rules, scheduled to takeeffect in January 2014, for an additional year.

Also of interest to credit unions is a provision thatincorporates the Financial Institutions Examination Fairness and Reform Act,which would establish an ombudsman outside of theNCUA to handle exam appeals, require that examiners to providecredit unions with documentation to support exam exceptionwrite-ups, and codify exam standards.

The bill would also delay implementation of Basel III capitalstandards for banks. Cheney said in his letter to Hensarling thathe encourages the committee to similarly delay an NCUA rule underdevelopment that would reform capital standards by adding arisk-based requirement for credit unions with more than $50 millionin assets.

While the bill has the support of House Republicans, a statementfrom House Financial Services Committee Ranking Member MaxineWaters (D-Calif.) suggests gaining Democratic support– necessary toadvance the bill beyond the Democratic-majority Senate–will be achallenge.

“I am strongly disappointed in the chairman's legislation, whichis little more than an attempt to reinvent America's housingfinance system using the same kind of right-wing ideology that haseroded America's middle class for decades,” she said in astatement. “This bill eliminates the 30-year fixed-rate mortgage aswe know it and consigns future generations of homeowners to thetypes of high interest, balloon-payment mortgages that caused thefinancial crisis. This is by no means a bipartisan bill. Bypresenting such an extreme proposal–with no input fromDemocrats–the chairman stands in stark contrast with his colleaguesin the Senate and has made it clear that bipartisan housing financereform is not his priority.”

Janice Sheppard, senior vice president of mortgage lending andcompliance for the $283 million Southwest Airlines FCU, testifiedbefore the full House Financial Services Committee July 18 on ahearing called specifically to discuss the bill. Sheppard, whoseDallas-headquartered credit union is located in Hensarling'sdistrict, represented NAFCU.

In her opening statement, Sheppard cited a 2012 NAFCU surveythat revealed more than 75% of respondents have a policy thatrestricts the percentage of real estate loans that can be held ontheir balance sheet, with a median limitation of just 35%. Withoutsecondary market access, credit unions would be unable to meetmember demand for mortgage loans, she said.

Sheppard also said that while NAFCU remains optimistic about thepossibilities of the proposed utility platform, especially in termsof improving efficiencies, the trade is “concerned that thefundamental question of guaranteed access remains to be anuncertain proposition.”

Sheppard said the reg relief that excludes items from thequalified mortgage 3% fee cap would go a long way toward ensuringmany affiliated loans, particularly those made to low- andmoderate-income borrowers, attain qualified mortgage status.