WASHINGTON—The House Financial Services Committee on Wednesday was urged by one CU CEO to pay closer attention to credit union principles as it moves forward on housing finance reform.
Richard Stafford, president and CEO of Tower FCU in Laurel, Md., testifying on behalf of NAFCU, delivered remarks at the House Financial Services Committee hearing entitled, "Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform," held by the Subcommittee on Housing and Insurance.
“NAFCU appreciates the Subcommittee’s attention to this important issue. The current system works for credit unions and we urge you to move cautiously with any reforms. As you consider housing finance reform, we urge you to adhere to the credit union principles outlined in my testimony,” Stafford told the hearing. “Whatever approach is taken to reform the system, it is vital that credit unions continue to have unfettered access to the secondary market and get fair pricing based on the quality of their loans. The government must also continue to play a role by providing an explicit government guarantee to help stabilize the market.”
Stafford called the Subcommittee’s approach to housing finance reform “thoughtful.”
“We urge the committee to carefully consider the practical implications of any potential changes. As the Committee considers reform, NAFCU and its member credit unions would urge you to narrowly tailor changes,” he stated. “At Tower, our business relationship and loan delivery/loan sale process with the GSE we use – Fannie Mae – is working just fine. With technologies deployed by Fannie Mae in recent years, it is easier in some ways today for credit unions to sell a loan than it was just five years ago. The current system is working for credit unions. However, we recognize the challenges to the current model that exist and appreciate this opportunity to offer our thoughts on reform.”
Noting that NAFCU has not endorsed any particular plan, Stafford noted that NAFCU has outlined several housing finance reform principles that should be included in any reform effort to guarantee the continued safety and soundness of the credit union industry.
Stafford outlined those principles in detail:
- A healthy, sustainable and viable secondary mortgage market must be maintained.
- The U.S. government should issue an explicit government guarantee on the payment of principal and interest on mortgage-backed securities (MBS).
- The GSEs should be self-funded, without any dedicated government appropriations.
- Creation of a FHFA board of advisors.
- The GSEs should be allowed to rebuild their capital buffers.
- The GSEs should not be fully privatized at this time.
- The FHLBs must remain a central part of the mortgage market.
- Credit risk transfer transactions should be expanded and the Common Securitization Platform (CSP) and Single Security retained.
- The FHFA or its successor should continue to provide strong oversight of the GSEs and the new system, whatever it may look like.
- The transition to a new system should be as seamless as possible.
Before closing, Stafford emphasized the importance of large institutions not being given control of the market.
“Even though large institutions play an important role, including serving as loan purchasers for small lenders, their market dominance would have negative consequences for smaller institutions,” he told the hearing. “In many instances, they compete for mortgage business with small lenders. Although they may be willing to buy and package small lender loans during good economic times, thereby ensuring liquidity for those small lenders, in an economic downturn, they may limit this activity, drying up liquidity for small lenders and reducing competition on the front-end. In that scenario, the consumers and communities that those small lenders serve lose access to mortgage credit. Congress must prevent such a scenario in a reformed housing finance system.”