WASHINGTON — Credit unions generally applauded the government takeover last week of Fannie Mae and Freddie Mac as a move that could alleviate the credit crunch in the housing market and provide lower interest rates. But one credit union president says the action won't cure the bigger ills facing the mortgage market.
Seattle-based Boeing Employees' Credit Union opined, "It's business as usual for credit unions. Fallout from the collapse of the subprime markets has created the single best opportunity for credit unions to claim their rightful place as their members' mortgage provider of choice. Members, as a result of what's happened, are looking for trustworthy, reliable lenders that offer affordable sustainable financing. That's a credit union. Credit unions, in turn, need affordable, reliable access to the secondary markets. That has, and will continue to be, Fannie Mae and Freddie Mac."
Jim Blaine, president/CEO of State Employees Credit Union in North Carolina, took a dimmer view of the big picture. Blaine noted first that the government's action only makes explicit what had been implicit–discussions of a new regulator for Fannie Mae and Freddie Mac had swirled around for years. He added that the action needed to be undertaken but that it does not cure the other ills in the housing market, such as the steep decline in housing prices.
Blaine also wondered how the takeover would affect other financial institutions such as insurance companies, commercial banks and pension funds that hold Fannie and Freddie preferred shares.
CUNA said the federal government takeover of Fannie Mae and Freddie Mac would strengthen the U.S. housing market and promote stability in the financial markets.
"We have strongly held that any disruption in the secondary mortgage market would have a significant and lasting negative effect on the housing market, with an especially strong impact on persons of modest means–whom credit unions serve as part of their mission," CUNA President/CEO Dan Mica said in a written statement.
"Further, from what we have seen, it appears this plan will lower mortgage rates from what they otherwise would have been and will lessen the impact of the credit crunch on the housing market. How much, remains to be seen," Mica added.
NAFCU President Fred Becker agreed. "NAFCU has long advocated for a strong secondary market for credit union mortgages, and our nation's GSEs have made it possible for millions of credit union members to realize the American dream of home ownership," he said.
"It is imperative that Fannie Mae and Freddie Mac have access to the capital they need to sustain the U.S. mortgage market at this time of uncertainty in the financial markets. We applaud Treasury Secretary Paulson, Federal Reserve Chairman Bernanke and Federal Housing Finance Agency Director Lockhart for their leadership role in working to ensure that our housing market remains strong and viable," Becker continued.
NCUA declined to comment.
A CUNA economist has predicted that lowered interest rates could cause some lenders to become more active in the mortgage market, leading to a slight slowdown for credit unions.
Federal officials have placed Fannie Mae and Freddie Mac under a conservatorship–a process similar to a Chapter 11 bankruptcy where a workout of the company's debt rather than a liquidation of the company is the goal–with quarterly infusions of cash from the government as needed. Officials at the top of the two GSEs were dismissed.
Widespread speculation is that the plan could allow the companies to get investor funding at cheaper rates, and, as a result, the wider mortgage market would see lowered interest rates and more money for mortgage funding.
Fannie Mae and Freddie Mac play a key role in U.S. housing markets. They do not make mortgage loans but serve as a bridge between lenders, such as credit unions, and investors. Lenders, freed from having to lend from their balance sheets, can make more mortgage loans and thus more profit by selling their loans to Fannie Mae and Freddie Mac, which package the loans into pools sold to investors. Together the two entities hold or guarantee half of the nation's mortgage debt.
In recent times, foreign investors, turned off by the turmoil in the American housing market, had started selling off huge stakes in the corporate hybrids, forcing Fannie Mae and Freddie Mac to borrow money at increasingly higher interest rates as they purchased more and more loans in an attempt to stabilize the housing market.
While the mortgage loans held by the two companies were considered the safest–made to borrowers with high credit scores and hefty down payments–as subprime financing became popular and investors chased their higher yields, the two GSEs began venturing into somewhat riskier loan profiles, called Alt-A, where defaults have risen.
The two companies have suffered billions of dollars of losses in the last several years.
Fannie and Freddie's new regulator, the Federal Housing Finance Agency, created under the massive housing bill recently signed into law by President Bush, is serving as conservator.
Fannie Mae was created by the government in 1938 but converted to a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
–burdenlisa@yahoo.com
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