CUS BID TO SAVE GOVERNMENT
MORTGAGE GUARANTEE
WASHINGTON-NAFCU told leaders of the Senate Banking Committee last week that the CU industry, which is emerging as one of the most important players in the mortgage market, is opposed to any mortgage reforms that would include elimination of the federal guarantee on loans sold on the secondary market currently through Fannie Mae and Freddie Mac.
NAFCU told leaders of the Senate Banking Committee at the start of hearings on reform of the mortgage market that CUs are concerned about any reform proposal that lacks a government guarantee now provided by Fannie Mae and Freddie Mac, as well as Ginnie Mae, the Federal Housing Administration, the Federal Home Loan Bank system and other government-sponsored enterprises.
NAFCU's concerns come after the Obama administration issued its own reform proposal last week that endorsed a phase-out of Fannie and Freddie and the privatization of the secondary market roles the two government-supported entities perform. The plans, which have growing bipartisan support in Congress, would incentivize private entities, like the big banks, to take a growing role in the secondary market, which amounts to the buying of mortgages from retail lenders like credit unions and banks, and packaging them as mortgage-backed securities for sale on Wall Street.
CUs told the Democratic and Republican leaders of the Senate Banking Committee that they are worried about a scenario where the nation's biggest mortgage lenders who already compete with credit unions and community banks to originate home loans gain control over the secondary market as well.
"It is unclear how a private market would attract investors as the housing market struggles to recover from the worst recession since the Great Depression," Brad Thaler, senior lobbyist for NAFCU, said in a letter to the Senate leaders. "Furthermore, privatization could freeze out community based lenders by leaving the secondary market dominated and controlled by a handful of large banks. Undoubtedly, this is the worst-case scenario for credit unions and their members."
NAFCU's concerns were aired as officials with the Obama administration were explaining its latest reform proposal to the Senate banking panel. The proposal would increase fees charged by Fannie and Freddie for guarantees on the mortgages they buy and for other services, and would eventually eliminate the two entities altogether.
This approach to the secondary market is also supported by Republicans in Congress, although the two sides disagree on how fast this should occur, with Republicans pushing for a rapid deployment.
But President Obama and congressional Democrats have stalled the reform, even as the bailout of Fannie and Freddie has exploded in cost, an estimated $150 billion so far. They worry the impact the rapid wind down of Fannie and Freddie would have on the market because the two giants become critical to the existence of the mortgage market-holding an incredible 90% of all single-family mortgages. The only sure thing is that no major reforms will be enacted before November's elections.
CENTRAL LIQUIDITY FACILITY
SEEN IN NEED OF OVERHAUL
ALEXANDRIA, Va.-Credit unions are calling on NCUA to undertake major reforms to its emergency lending fund, the Central Liquidity Facility, which is endangered by the demise of its owner U.S. Central FCU.
Shortcomings of the emergency lender, owned by U.S. Central and its corporate members but operated by NCUA, emerged during the 2007-2008 financial crisis, even as the fund was used to funnel $10 billion to a teetering U.S. Central, itself, and WesCorp FCU.
But CUs see the structure as a dinosaur because of the difficulty in tapping into the fund and the growing number of liquidity resources for credit unions, including the Federal Reserve's Discount Window and the Federal Home Loan Bank system. In fact these two sources acted as the leading sources of liquidity during the crisis, far eclipsing the CLF.
The demise of some of the corporates that acted as CU's first line of liquidity, has heightened concerns within the industry.
"America First believes that if the CLF was 'modernized' onto a convenient and reliable source of liquidity, with fewer restrictions on advances and same day availability, credit unions would be much more willing to capitalize directly or indirectly through their corporate," David Stacey, treasurer's office manager for the Utah credit union giant, wrote NCUA in a recent comment letter on proposed rule on liquidity backstops.
The CLF's $1.5 billion in capital stock is owned by U.S. Central and its corporate "agents" of the CLF, but only half of the stock is actually funded, while the other half is on-call in an emergency. In addition, the fund, which was created as a government-sponsored enterprise, has a line of credit union of some $20 billion with the U.S. Treasury in times of emergency.
But with the planned phase-out of U.S. Central, NCUA is exploring a new structure, and some question whether the CLF is even necessary and whether the same emergency loans could not be provided more efficiently through the NCUSIF.
Most CUs agree on the need of an emergency back-stop that is dedicated to credit unions but worry that the current structure makes it difficult to tap into the available CLF funds. For one thing, the CLF will only grant loans to CUs that are not in danger of failing and can demonstrate a need of liquidity. For another, the CLF can take five days to approve an application and another five days to fund an emergency advance.
"The current requirements to establish direct membership with the CLF as well as the ongoing maintenance requirements are very onerous," wrote Mark Dwyer, San Antonio FCU CFO. "The CLF should provide liquidity access in the most timely, efficient manner."
