CUs, Community Lenders Must be at Core of Secondary Mortgage Market

President Donald Trump issued a presidential memorandum Wednesday directing the Treasury and Housing and Urban Development departments to draft both administrative and legislative reform options to the housing finance system.

CUNA and the state leagues are committed to working with the Administration and Congress to create a strong foundation for housing finance reform, CUNA wrote to the Senate Banking Committee Wednesday. The committee conducted a two-day hearing on Senate Banking Committee Chair Mike Crapo’s (R-Idaho) outline for housing finance reform.

“As important as it is to act to reform the secondary mortgage market, it is even more important to get it right,” the letter reads. “CUNA and our members continue to believe that for credit unions and our members, getting it right should mean one thing: Community lenders must be at the core of the future secondary mortgage market.”

The letter says that three features are necessary for credit unions and other small lenders to continue to provide affordable mortgage credit:

  • Equity: Any future system should function well for lenders of all shapes and sizes;
  • Anti-discrimination principle: Proposals for a multi-guarantor model must include an obligation for guarantors to serve all lenders, rather than exclusively doing business with lenders offering larger volumes of loans; and
  • Preservation of the cash commitment window: This is critical for community lenders attempting to meet consumers’ need, as smaller lenders need to be able to deliver a single confirming mortgage and receive funding the next day.

CUNA also included several data points about credit union mortgage lending, including:

  • Credit union first mortgage originations accounted for nearly 9% of total U.S. first mortgage originations in 2018 – up from 2% of total originations annually prior to the start of the financial crisis.
  • According to 2017 Home Mortgage Disclosure Act data the average first mortgage loan size at credit unions is approximately $200,000 – roughly 28% lower than the average loan size at banks;
  • Credit unions are primarily portfolio lenders, reflected in the fact that only 30% of these institutions sold mortgages into the secondary market in 2018; and
  • As a group, credit unions sold one-third of their first mortgage originations into the secondary market in 2018 and sold an average of 39% of their originations since 2000.

The letter identifies several key principles that should form the foundation of the housing finance system, equal access to lenders of all sizes; affordable mortgage payments; a reasonable and orderly transition to a new system, strong oversight for market entities; a federally insured system for durability; and preservation of things that work in the current system.