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VIENNA, Va. – Noting Navy FCU’s support for improving the regulatory oversight of housing Government-Sponsored Enterprises Fannie Mae and Freddie Mac and emphasizing its shared concerns that “Fannie Mae and Freddie Mac continue to be financially sound and well-capitalized,” Navy FCU President/CEO Brian McDonnell penned identical letters to Senate Banking, Housing & Urban Affairs Committee Chairman Richard Shelby (R-Ala.) and House Financial Services Committee Chairman Michael Oxley (R-Ohio) recommending legislators consider alternative ways to strengthen the regulation of the GSEs, other than shifting the regulation to a new agency within the Treasury Department, that would not “curtail innovation” or stifle lending. “While Navy Federal supports improving the regulatory oversight of Fannie Mae and Freddie Mac, we are concerned about several of the proposals your committee is considering,” McDonnell wrote in his Sept. 25th letters. “We believe that any legislation emerging from your committee must not impact the affordability of housing for our members and all Americans, nor should the legislation impede the ability of Fannie Mae, Freddie Mac, and lenders to create innovative products to serve the needs of America’s homebuyers.” Lou Jennings, executive vice president, Lending Department, for Navy FCU told Credit Union Times the credit union has been closely following developments and discussions – including various testimonies – surrounding the issue and was particularly concerned by the comments and recommendations made by Secretary of the Treasury John Snow on Sept. 10 before the House Financial Services Committee. In his testimony, Snowe observed that “there is general recognition that the supervisory system for housing-related government sponsored enterprises (GSEs) neither has the tools, nor the stature, to deal effectively with the current size, complexity, and importance of these enterprise.” The Treasury Secretary recommended that Congress enact legislation creating a new Federal agency under Treasury to regulate and supervise the activities of the GSEs and remove that current authority from HUD, and he outlined what the powers of the new agency would be. Among the new agency’s powers are having the authority to evaluate and approve new products and practices, and setting appropriate levels for risk-based capital “to ensure that each GSE retains adequate capital to support its risks.,” Snowe said. Regarding Snowe’s comments concerning establishing capital requirements for the GSEs, McDonnell conceded in his letter that “I do not feel qualified to specifically address what the capital requirements for Fannie Mae and Freddie Mac should be.” However, responding to Snowe’s suggestion to remove the oversight of the GSE’s housing activities from HUD, McDonnell was more outspoken and wrote: “HUD was founded to support housing, which is consistent with the charter and mission of both Fannie Mae and Freddie Mac. One has to question the wisdom of removing oversight from the governmental agency charged with national housing policy.” He continued that, “My primary concern is with any regulation that would restrict Fannie Mae’s and Freddie Mac’s ability to create innovative new products or their ability to approve the purchase of creative products from their lenders.We are most concerned that, after expending time and effort to develop innovative products for our membership, an overbearing regulatory agency could greatly extend the time for approval or even deny the new products. This would strangle innovation and throttle our ability to continue work with Fannie Mae and Freddie Mac to create innovative products to meet our members’ changing needs. We do not see this as a safety and soundness issue, and can see no rationale for pursuing a significant change in the regulatory oversight of new products. While one can debate the appropriate capital requirements of GSEs, there are no issues of concern regarding the new products Fannie Mae and Freddie Mac offer.A more invasive oversight process would curtail innovation and threaten Navy Federal’s – and other lenders’ – ability to continue efforts to expand mortgage loan affordability for our members.” Jennings said, “Navy has trouble connecting the dots and seeing the logic in taking the regulation of the housing GSEs from HUD and transferring it to Treasury. Snowe’s recommendation is far-reaching. Any legislation that includes provisions restricting Fannie Mae’s and Freddie Mac’s ability to create products and technology to improve products and services or that restricts the types of products we as lenders have to offer, is very important. It’s counter-intuitive to transfer the oversight of the GSEs to a government agency without a housing mission. “Fannie Mae has always understood our relationship with our members and has been willing to buy loans with a rapid approval process,” he added. “Navy FCU has a unique membership and working with Fannie Mae, we’ve been able to come up with unique products that address the needs of our members.” Jennings said Navy is in the process of renegotiating its master agreement with Fannie Mae that allows the credit union to lock in to pricing and the programs Navy offers to its members that are geared to low- to moderate-income borrowers such as no-money-down, 0% financing loans and a conventional VA loan product. He added that if a super agency came in and said it didn’t like those programs, “they could pull them.” What’s more, he said, Navy is concerned that a rapid approval process that now takes only a couple of months, could take a couple of years, “and the super agency could still come back and say the new program is a no go.” He continued to say that, “I’m concerned if a super agency has program approval powers, Navy would just be thrown in to the mix with lenders such as mortgage brokers. There is no way Navy Fed could win in such a homogenized scenario,” he said. Navy FCU, which serves mostly military and civilian personnel of the Navy and Marine Corps and their families, provides loans in all 50 states and D.C. In 2002, the $19.8 billion CU sold $3 billion in mortgage loans on the secondary market, and it expects to sell more than $4.5 billion in 2003. Jennings said he was aware the legislation “is not a done deal, and the cards are being reshuffled.” On Oct. 3, for example, Fannie Mae Chairman and CEO Franklin Raines said he would oppose a provision of the Treasury Department’s plan to give a new Treasury agency product approval powers, and the GSE supported keeping that power with HUD. Just the prior week, in testimony t the House Financial Services Committee, he asked Congress to enact legislation that would move the GSE’s financial regulator to a bureau of the U.S. Treasury. In addition, on Oct. 2, House Financial Services Committee Chairman Michael Oxley (R-Ohio) began circulating a draft of legislation that would transfer safety and soundness oversight of the GSEs to a new agency under Treasury, but keep the administration and authority of new programs under HUD. “Navy doesn’t want the legislation to be a Christmas tree that has other onerous aspects hanging from it,” said Jennings. “We need flexibility to be able to put our programs out there to satisfy our members’ needs. If legislation passed that more closely mirrored Snowe’s proposal or if it looked like it “was coming down the pike on the fast track without a lot of consideration,” then Jennings said “Congress would see us and the credit union trade associations become more vocal.” When asked to be more specific, Jennings said that would include writing letters to Congress “and doing whatever was necessary.” -

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