Despite what almost everyone agrees is the deep importance ofthe topic, credit unions have become largely ambivalent aboutreforming the secondary mortgage market and uncertain aboutpotentially disrupting a system which seems to be working well,according to executives with credit union organizations familiarwith the issue.

Bob Dorsa, president of the American Consumer MortgageAssociation, the only nationwide credit union association directedsolely at housing finance issues, replied via email to a questionabout how much credit unions care about secondary marketreform.

“Yes, credit unions care since we are now a bigger participantin the housing finance system,” Dorsa wrote. “ACUMA believes 2012loan origination totals will exceed $120 billion, which is a largeincrease over 2011 and a new all-time record. Maintaining areasonable balance in the capital markets is important to thenation's housing issues and the economy,” he wrote. But the subjectdoesn't have the edge it once did. 

In the first 24 months of the housing crisis, when everythingwas very raw, many credit unions experienced high degrees ofanxiety about what might happen with the secondary mortgage marketand whether they might have any access to it in the future.

But, as time has passed since the height of the housing financecrisis, credit unions have gradually gained confidence about theirabilities to adapt and that has taken a bit of an edge off theiranxiety about making that reform happen, Dorsa explained.

“Since 2008 with the housing bubble crash and the first thoughtthat issues for mortgage bankers, including CUs would drasticallychange, there was much uncertainty. Since then, mortgage lendingCUs have taken time to evaluate various business options for theway they will manage the risks associated with mortgage lending andfortunately found there are many that will work nicely. The obviousquestion is how, or more importantly when will this issue beaddressed?”

The current secondary mortgage market is dominated by twogovernment-sponsored enterprises, Fannie Mae and Freddie Mac, whichfailed in September 2008 and have existed ever since as directlygovernment-controlled organizations. While under federal control,the two organizations have taken steps to tighten the underwritingstandards for mortgages they purchase and slowly but steadily theirpositions have improved. In May of 2012, Fannie Mae reported thatit made a profit in the first quarter of that year and that itwould not need more government funds, a first since 2008, theresults of both its own internal reforms and an improvingeconomy.

Analysts attributed the firms' recovery to nationwide housingprices drawing near the bottom of their fall and a sharp decreasein the number of houses entering the foreclosure process. Inaddition, what analysts described as a bulge in serious losses hadprobably moved through the markets by this time as well, signalingthat Fannie and Freddie probably face more profitable positions inthe future.

All this has likely helped take the edge off any desire fromhousing finance originators, financiers or lawmakers to launch asignificant fight about reforming Fannie and Freddie.

No one from the Mortgage Bankers Association, a tradeassociation that has both bank and credit union members, wouldspeak on the record for this article. But some MBA executivesacknowledged that a big push toward secondary housing market reformdid not look likely for this session of Congress or even in thenext.

The executives declined to speculate on the reason the issueappears to have moved to the back burner but agreed that neitherthe Obama administration nor congressional leaders have put thetopic on their list of top priorities this year.

“I think part of it is that the system they have now, while notperfect, is working,” said Robert Lund, vice president ofresidential mortgage lending at the 212,000-member $5.1 billionBethpage Federal Credit Union headquartered in Bethpage NewYork.

The self-described largest credit union on Long Island made over6500 mortgage loans in 2012, worth $1.67 billion, of which almost$1 billion was sold onto the secondary market.

“I don't think I have anything really profound to add to theconversation,” said Lund, “but I will report that we throw a lot ofbusiness toward Fannie and Freddie and have found them good to workwith, in some ways better to work with than they used to be,”though he acknowledged that with only five years of history atBethpage, his memory about the time before the housing crisis waslimited.

Lund observed that with the secondary market purchasing loans ina regular and efficient manner and with those loans performingsteadily better, allowing for improved markets in securities backedby the mortgages, there has been a steadily increasing belief thatthings are working and might not need to be fixed right away.“Plus, it's not like they don't have a lot of other things to doalready,” he observed. He and other housing finance executives saidthey lacked confidence that lawmakers were up to tackling a topicas complicated and potentially economically harmful as reformingthe secondary housing market. “They can't even agree who is goingto be Secretary of Defense,” he snorted, commenting on the recentfight in the U.S. Senate over whether former Sen. Charles Hegelwill take that position.

But CUNA General Counsel Eric Richard said that while creditunion are growing their housing finance programs with Fannie andFreddie as partners, they also need to remain engaged with thequestion of when and how to change these market settingorganizations. 

He pointed out that Texas Republican representative JebHensarling still chairs the House Committee on Financial Servicesand that he has Fannie and Freddie reform on his agenda. This meanscredit unions need to remain actively engaged with the issue onCapitol Hill, he said. Further, he contended credit unions shouldalso work to see the reform started, in part to regain some measureof control over the situation and its outcome.

“Absent any legislative work on reform, we see a pattern orcreeping changes from the Federal Housing Finance Agency thatcredit unions should find disturbing,” Richard said. He argued thatunder acting director Edward DeMarco, the agency appeared to bepricing Fannie and Freddie out of secondary mortgage market, asituation that credit unions should oppose. Richard contended, theFHFA was moving toward a secondary market that will be dominated bylarge banks with no commitment to providing market access tosmaller mortgage issuers such as credit unions.