The Senate Banking, Housing and Urban Affairs Committee plans to conduct a hearing this afternoon regarding housing finance reform that will focus on private investments.

“Returning Private Capital to Mortgage Markets: A Fundamental for Housing Finance Reform” will call policy experts and academics to testify, including Mark A. Willis, resident research fellow at the New York University Center for Real Estate and Urban Policy. Willis, a former New York Federal Reserve economist and JPMorgan Chase executive, recommends first restoring private capital to jumbo mortgage funding, and moving more slowly using private, risk-based capital to fund the remainder of the secondary market.

He cautioned against turning the secondary market over completely to private investors because they may demand tighter underwriting standards to offset risk.

“It is simply naïve to expect private investors to adjust their expectations of an acceptable return in order to make homeownership more accessible and affordable or to put capital at risk during market downturns,” Willis wrote in his prepared remarks. With a nod to credit union industry concerns, he added, “Their presence may also make it harder for smaller originators to have access to the government wrap.”

In a May 13 letter to subcommittee leaders, NAFCU Executive Vice President of Government Affairs Dan Berger stressed how important unrestricted access to the secondary mortgage market is to credit unions.

“This source of liquidity is critical to enabling credit unions to serve the mortgage needs of their 95 million member-owners across the country,” he wrote to chairman Sen. Jon Tester (D-Mont.), who received significant credit union support in his 2012 re-election.

Berger also stressed that second mortgage market reform must include safeguards that would prevent discrimination against institutions on the basis of asset size or any geopolitical issues.

“There needs to be a heavy focus on fair pricing that reflects loan quality as opposed to standards almost exclusively based on loan volume,” he said.

The soon-to-be NAFCU president also addressed a recent announcement from the Federal Housing Finance Agency that said Fannie Mae and Freddie Mac will not purchase loans that don't meet the Consumer Financial Protection Bureau's “qualified mortgage” standards.

The new policy could reduce mortgage credit in underserved and rural communities, Berger said.

The hearing is scheduled for 3:15 p.m.