NAFCU: The credit union perspective to housing finance reform

Mortgage & Real Estate

As talks surrounding housing finance reform persist, the National Association of Federally-Insured Credit Unions published its own thoughts on the matter to ensure the safety of the credit union system in whatever reform is ultimately implemented.

“Credit unions play a vital part in today’s mortgage market by providing high-quality loans and increasing their members’ access to credit,” said NAFCU President and CEO Dan Berger. “NAFCU believes that these core principles must be retained in any housing finance reform package, along with a healthy and sustainable secondary mortgage market that provides equal access to lenders of all sizes.”

NAFCU touts that it is the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions. It is a direct membership association that serves the needs of federally-insured credit unions through federal advocacy, education, and compliance assistance.

The report provides an outline of NAFCU’s principles for the future state of housing finance reform. However, NAFCU added that while the paper is not an official proposal for GSE reform, it believes whatever reform option is ultimately adopted must include these core principles to ensure the safety and soundness of credit unions nationwide.

No. 1 on NAFCU’s priority list is “access to the secondary mortgage market for credit unions with fair pricing based on loan quality as opposed to volume.”

“Overall, the GSE securitization process remains a key component of the safety and soundness of credit unions nationwide,” the report stated. “In addition to maintaining access to a healthy and viable secondary mortgage market, fair pricing is equally as critical in ensuring community-based financial service providers have a seat at the table.”

Here are several of NAFCU’s principles for housing finance reform. The full list of principles can be found here.

1. Explicit government guarantee

The U.S. government should issue an explicit government guarantee on the payment of principal and interest on MBS.

The explicit guarantee will provide certainty to the market, especially for investors who will need to be enticed to invest in MBS, and facilitate the flow of liquidity through the market.

2. The GSEs should be allowed to rebuild their capital buffers.

Rebuilding capital buffers ensures the safety and soundness of the GSEs, maintains investor confidence, prevents market disruption, and reduces the likelihood of another taxpayer bailout in the event of a future catastrophic market downturn. The GSEs should be permitted to begin rebuilding capital slowly over a period of several years.

3. The GSEs should not be fully privatized at this time.

There continue to be serious concerns that in a fully privatized system, in which the GSEs are sold off to the secondary market, small, community-based financial institutions could be shut out of the secondary market. Any privatization efforts should be gradual and ensure that credit unions have continued access to the GSEs and the secondary mortgage market.

“These general positions underlie the following specific GSE reform principles that NAFCU believes must be a central part of any legislative reform effort. The ultimate goal is to create a thriving and sustainable market for mortgage-backed securities (MBS) that will provide equal access to lenders of all sizes and will not require another taxpayer bailout,” the letter stated. 

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