WASHINGTON — The House Financial Services Committee was slated to hold a hearing last week to look at a broad solution to the subprime mortgage problem that provides relief to borrowers and holds the original lenders accountable either through discounts, refinancings or other means.
CUNA Vice President of Legislative Affairs Dean Sagar said that credit unions can be part of the solution. However, the former staffer to committee chairman Barney Frank (D-Mass.) said, "A lot of these mortgages, the reason people are in trouble, is they've refinanced several times. Their equity has been stripped. Many of them now owe more than the value of the house and to go in and just refinance it–and to hold the original lenders, brokers, all the people that buffeted and created the abuse–holds them harmless and shifts all that risk over to the credit union."
In the meantime, federal regulators issued a statement last week urging banks, thrifts, and credit unions to work with borrowers feeling the pinch of rising interest rates in their mortgage payments.
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NCUA and the other federal financial institutions regulatory agencies said they "encourage financial institutions to work constructively with residential borrowers who are financially unable to make their contractual payment obligations on their home loans…"
"Many residential borrowers may face significant payment increases when their adjustable rate mortgage (ARM) loans reset in the coming months. These borrowers may not have sufficient financial capacity to service a higher debt load, especially if they were qualified based on a low introductory payment."
As incentive, the regulators said banks and thrifts could receive positive Community Reinvestment Act consideration for bringing low-income people into lower cost loans with appropriate underwriting. The agencies also promised not to penalize reasonable workout arrangements. Credit unions are not covered under CRA.
NCUA's Letter to Credit Unions (07-CU-06) on the regulators' statement read, "Federally insured credit unions are reminded that prudent workout arrangements can be in the long-term best interest of both credit unions and their members. NCUA encourages credit unions to consider reasonable workout agreements, whenever sound, that allow members to keep their homes." It directed credit unions to letter 05-CU-15, Increasing Risks in Mortgage Lending. –[email protected]
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