WASHINGTON – Talk about perseverance. After five years, 20 hearings and testimony from more than 100 witnesses, Congress passed U.S. Rep. Richard Baker's (R-La.) legislation Oct. 26 that among its provisions, provides for stricter oversight of the three housing Government Sponsored Enterprises – the Freddie Mac, Fannie Mae and the Federal Home Loan Bank (FHLB) system – by creating a new and independent regulator – the Federal Housing Finance Agency. The House passed H.R. 1461 by a 331-90 vote. In addition to creating a new regulator for the GSEs, the Baker bill: * creates a new, private fund for affordable housing and gives priority to areas of the country affected by the recent hurricanes. The fund would be created for a five year-period, with Fannie Mae and Freddie Mac contributing a percentage of their after-tax earnings. The fund would make approximately $450-$650 million available annually to fund affordable housing proposals. * grants the regulator the authority to adjust the portfolio holdings of the GSEs, as well as the authority to increase minimum capital and risk-based capital standards. * the regulator would have to approve both new programs and new business activities of the GSEs, and it could take prompt corrective actions and have other enforcement powers. While Baker's involvement in pushing through GSE reform legislation goes back to 2000 and particularly since 2001 when he became chairman of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, it was the accounting mismanagement scandals at Freddie Mac and Fannie Mae in 2003 and 2004, respectively, that reopened the scrutiny of the regulatory structure of the GSEs and got lawmakers' attention. Despite the strong passage of the House bill, it's not a done deal yet. The measure still has to be signed into law by President Bush, and whether he will do that is questionable since the White House has said it opposes the measure because it isn't tough enough. There's also the Senate bill that was approved by the Senate Banking Committee earlier this year on a strict party line vote. Democrats on the committee have threatened to filibuster the measure if it comes to the House floor for a vote. Of the two measures on the table, NAFCU Director of Regulatory Affairs Brad Thaler said the trade association prefers the House version because it better protects credit unions' relationships with the GSEs and allows them to remain competitive in mortgage lending. The Senate bill, he said, has some stricter provisions dealing with the GSEs' portfolio "and ultimately they could have an effect on the relationships credit unions have with the GSEs." Thaler stressed that "NAFCU hasn't taken a position for or against whether there should be GSE reform. Our primary concern has to do with there being a good federal regulator in place for the GSEs, we haven't been involved in the larger debate for reform." He explained that as part of the GSE reform process, NAFCU's primary concern has always been making sure credit unions' relationship with the GSEs wasn't damaged. "The growth of Fannie and Freddie and their ability to purchase loans on the secondary market has allowed credit unions to make more home loans which in turn has helped with homeownership growth in the U.S. We don't want to see that relationship damaged as part of any GSE reform effort," Thaler added. Specifically, NAFCU has weighed in on three main areas of concern with GSE reform legislation: * the bright line test – there shouldn't be a hard line between primary mortgage origination products such as the GSEs' automated underwriting tools that credit unions use and the secondary market. * approval of new products – NAFCU is concerned if there's a required notice and comment period every time the GSEs want to bring a new product to market, that will give CUs' mortgage lending competitors the ability to bring those products to market faster and give them a competitive advantage. * limits on GSEs' portfolios – NAFCU is concerned that too strict limits would put constraints on what the GSEs could buy on the secondary market. Like NAFCU, CUNA too does not hold a position on the overall legislative proposals of GSE regulation. However, the association said "because many credit unions and their members benefit from the financing available through the GSEs, CUNA has adopted positions on a few select issues as part of the current legislative debate." These issues mirror those on NAFCU's radar screen. Another area of concern for CUNA regards the arrangements in which lenders enter into commitments with the GSEs for the purchase of a fixed amount of mortgage loans at a particular rate before the specific loans are identified or closed. This permits lenders and the GSEs to manage interest rates and credit risk and allows homebuyers to lock in interest rates prior to settlement. Any major overhaul of the secondary mortgage market could have a significant effect on the housing market, said CUNA, and those who will be affected the worst would most likely be those of modest means whom credit unions serve as part of their mission. -

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