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Housing finance reforms must meet CU needs CUNA
WASHINGTON (6/29/11)--Any changes to the U.S. housing finance system must ensure that credit unions and other small issuers maintain fair and affordable access to secondary mortgage markets, SECU of Maryland President/CEO Rod Staatz told members of the Senate Banking Committee on Tuesday. Staatz testified on behalf of the Credit Union National Association (CUNA) during a committee hearing on mortgage finance reforms. He was the only credit union witness.
Click to view larger image Credit unions are increasingly important lenders in the residential mortgage market, testifies CUNA witness Rod Staatz (foreground) before a Senate committee hearing on housing finance reform. After averaging just over 2% of all residential first mortgage originations in the fifteen years ending in 2007, the credit union share of originations more than doubled to 5% during the past three years, and more recently has risen to almost 6%, Staatz, president/CEO of SECU of Maryland, points out. CUNA VP of Legislative Affairs Ryan Donovan is shown behind Staatz. (CUNA Photo)
Congress must “take reasonable time” to complete changes to the country’s housing finance system, including reform of the government-sponsored enterprises (GSE), and to ensure that an effective foundation will be responsive to the needs of borrowers and lenders,” he said during his testimony. While the problems that led to the conservatorships of Fannie Mae and Freddie Mac need to be addressed in a comprehensive and meaningful manner, the widespread availability of mortgage credit, housing affordability, consumer protection, financial stability and strong regulation must be maintained, Staatz added. “Reform of the housing finance system has already proven to be a very difficult challenge, but failing to make necessary changes to improve the system will result in even greater challenges for the economy, lenders, and borrowers,” he said. Toxic assets and other mortgage market issues led to the 2008 conservatorship of the GSEs. The government conservatorship of these entities has cost taxpayers more than $150 billion. The Obama administration has proposed a trio of potential outcomes for the GSEs, including almost completely privatizing the housing finance system, limiting the government's intervention in the mortgage market to times of financial distress, and using a system of reinsurance to backstop private mortgage guarantors to a targeted range of mortgages. Credit unions are concerned that fully privatizing the securitization market by turning it over to a group of large banks, as has been suggested by some, could exclude them from important parts of the market. Staatz noted that maintaining a neutral third party with the sole task of acting as a secondary market conduit must be a vital part of any reforms. Staatz also highlighted the importance of preserving 30-year fixed-rate mortgages and ensuring that the secondary market is strong enough to weather economic adversity. The definition of qualified residential mortgages (QRMs) was also covered during Staatz’s testimony, with the credit union CEO and CUNA urging Congress to insist that regulators go back to the drawing board and issue a new proposed QRM definition for public comments. The Dodd-Frank Wall Street Reform Act requires regulators to write a rule on credit risk retention for securitized assets, but allows QRMs to be exempted from the requirement that the lender retain 5% of the credit risk. CUNA and others, including a bipartisan group of lawmakers, have criticized a proposal to require a 20% down payment for a loan to be defined as a QRM, saying that this change would "shut out responsible homebuyers and further cripple the housing market." Requiring higher down payments from potential homebuyers could also “dry up mortgage liquidity for small lenders,” Staatz warned. American Enterprise Institute fellow Edward Pinto and Community Reinvestment Association of North Carolina executive director Peter Skillern also spoke during the hearing. Peoples Bank Company CEO Jack Hartings also testified on behalf of the Independent Community Bankers of America, and South Shore Saving Bank vice president Christopher Dunn spoke on behalf of the American Bankers Association. For video of the hearing, use the resource link.
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