Housing Finance Reform Must Preserve Access to Viable Secondary Mortgage Market

Community lenders must be at the core of the future secondary mortgage market, CUNA wrote to the Senate Banking Committee for its Tuesday hearing on the housing finance reform, “Housing Finance Reform: Next Steps;”. CUNA’s letter outlined features that must be present in a future system to ensure a strong and sustainable secondary market.

“Each of these features—pricing and term parity, an obligation to serve all lenders, and the simplicity of a cash commitment window—are crucial components of any secondary market housing finance reform proposal that honestly seeks to ensure community lenders can compete and offer consumers an alternative to big banks and huge mortgage finance companies,” the letter reads. “Given the increasing market share that credit unions have gained in the primary mortgage market over the years, it is clear that our member owners want to be able to count on their community lender when it comes to buying a home.”

CUNA and the state leagues believe, as Congress and the administration work to reform the current housing finance system, the following must rank as priorities:

  • Equal accessto lenders of all sizes on an equitable basis;
  • Affordabilitythat incudes recognition of the fact that smaller lenders, such as credit unions, often meet mortgage needs that banks are unwilling or unable to address in rural and working-class communities that require greater flexibility in underwriting requirements and weigh against mandatory minimum down payments;
  • A reasonable and orderly transitionto a new housing finance system. Accordingly, efforts to transfer guarantee oversight authority to entities, such as Ginnie Mae, must honestly assess and plan for potential frustrations if not acknowledged, addressed, and corrected well in advance of any transition;
  • Strong oversight andsupervision to ensure the safety and soundness of secondary market entities;
  • Durability, by including an explicit federally insured or guaranteed component to ensure that, even in troubled economic times, the secondary mortgage market continues to exist; and
  • Preserving what works, such as cost-effective and member-oriented credit union mortgage servicing options, emphasizing consumer education and home-purchase counseling, and applying reasonable conforming loan limits that adequately consider local real estate expenses in higher cost areas.

CUNA also noted that the future secondary mortgage market must “build upon and strengthen the existing partnerships between credit unions, guarantors, and Federal Home Loan Banks in ensuring access to responsible and affordable mortgage credit for millions of credit union members.”

The administration recently released its proposal for housing finance reform, which along with the blueprint released by Senate Banking Committee Chair Mike Crapo (R-ID), CUNA said are “important first steps” in the process.

“CUNA and our credit union members are committed to working with both Congress and the Administration to refine and build upon those proposals to ensure that they accomplish a strong and sustainable secondary mortgage market for the future,” the letter reads.

Treasury Secretary Steven Mnuchin, Department of Housing and Urban Development (HUD) Secretary Ben Carson, and Federal Housing Finance Agency (FHFA) Director Mark Calabria provided testimony to the committee on the issue.

During opening remarks, Committee Chair Crapo stressed the importance of a level playing field and Ranking Member Sherrod Brown (D-OH) said reforms need to focus on increasing services for underserved borrowers. 

Secretary Mnuchin provided the committee with a detailed overview of the Treasury's plan and said the department prefers to work with Congress to enact comprehensive housing finance reform. He also discussed the issue of providing a government backing for 30-year, fixed-rate mortgages. When asked how community banks and credit unions would be impacted by the proposed reforms, he said Treasury "will absolutely make sure they did not fare worse. We want them to be treated fairly; that is a very big part of any future plan.” 

Secretary Carson added that these institutions are key to housing finance reform, noting "their ability particularly to provide education to people about housing financial management is essential.” Director Calabria also said that FHFA would work to eliminate volume discounts for large lenders to ensure equal pricing.

Treasury's Housing Reform Plan features specific legislative and administrative recommendations, including:

  • Creating an explicit catastrophic government guarantee on mortgage-backed securities issued by government-sponsored enterprises (GSE’s) Fannie Mae and Freddie Mac;
  • Giving the Federal Housing Finance Agency (FHFA) more discretion on regulatory capital requirements;
  • Chartering new guarantors to compete with GSEs;
  • Letting expire the CFPB's qualified mortgage patch;
  • Replacing the GSEs' statutory affordable housing goals with "more efficient, transparent, and accountable" programs; and
  • Having the FHFA work with bank regulators to address the "potentially unwarranted gap" between tough capital rules for banks that hold and service mortgages, and the less stringent ones for the GSEs.

Key provisions within HUD's Housing Finance Reform Plan include:

  • Strengthening Federal Housing Administration (FHA) programs for single-family borrowers;
  • Providing more regulatory certainty to FHA lenders;
  • Establishing FHA as an autonomous corporation within HUD;
  • Modernizing FHA technology;
  • Using Ginnie Mae's authority to end loan "churning"; and
  • Guaranteeing fee-setting flexibility for Ginnie Mae. 

CUNA and the state leagues will continue to press Capitol Hill lawmakers to ensure that any housing finance reform scheme preserves credit unions’ access to a viable secondary mortgage market. The issue has been front and center during the NJCUL’s in-district meetings with members of New Jersey’s congressional delegation.