FANNIE, FREDDIE PROPOSAL
COULD HARM CUS, SAY TRADES
WASHINGTON-Credit unions could be hurt by a proposal aired today that would allow Fannie Mae and Freddie Mac to write down the principal on millions of at-risk mortgages, industry leaders warned last week.
"We are gravely concerned that incorporating principal forgiveness modification as part of borrower-assistance programs would create an incentive for at least some borrowers to strategically default, causing credit unions and their members significant losses that they will not be able to recoup," said Fred Becker, president of NAFCU. "Credit unions would be more acutely affected by such losses because of their inability to tap into markets to raise capital in order to support revenue-generating programs that would offset the losses."
"NAFCU believes that principal forgiveness is a policy that would ultimately hurt the housing market and cost credit unions and their members greatly. Accordingly, we strongly urge you to refrain from adopting such policy," said Becker.
Becker's remarks came in a letter to Ed DeMarco, director of the Federal Housing Finance Agency, which oversees Fannie and Freddie, after DeMarco said the agency is considering allowing the two housing giants to write down principal payments owed by at-risk borrowers to help them stay in their homes. In a recent speech DeMarco said that mortgage principal reductions would lower Fannie and Freddie losses and help stabilize home prices faster.
Any reduction in principal would help the at-risk borrowers but come at a big cost to Fannie and Freddie, which have been racking up tens of billions of government bailout costs. The write-down would not occur at the originator, but would hurt real estate values in the affected markets and put more pressure for CUs and banks to also agree to principal write-downs, according to Becker.
"The far larger group of underwater borrowers who today have remained faithful to paying their mortgage obligations are the much greater contingent risk to housing markets and to taxpayers," wrote Becker. "Encouraging their continued success could have a greater impact on the ultimate recovery of housing markets and cost to the taxpayers than the debate over which modification approach offered to troubled borrowers is preferable. A key risk in principal forgiveness targeted at delinquent borrowers is the incentive created for some portion of these current borrowers to cease paying in search of a principal forgiveness modification."
The regulator still says the agency must weigh the reductions against losses to taxpayers, who already have spent $170 billion to bail out the companies. Allowing reductions could lead to a rise in borrowers who strategically default on their loans, he warns. And fewer than 1 million homeowners would be eligible for principal reductions-a fraction of the estimated 11 million Americans who owe more on their mortgages than their homes are worth, he added.
The agency will make a final decision on principal reductions by the end of the month.
BILL WOULD REQUIRE COLLEGES
TO CALCULATE ABILITY TO REPAY
WASHINGTON-A bill introduced in the Senate would require colleges to counsel students before they sign on to private loans and inform them if they are eligible for federal loans.
The "Know Before You Owe Act of 2012," sponsored by Democratic Sens. Richard Durbin of Illinois and Tom Harkin of Iowa, would also require the borrower's school to confirm the enrollment status, cost of attendance and estimated federal financial aid assistance before the private loan is approved.
The proposed legislation comes as hundreds of CUs have either introduced private student loan programs over the past two years or are contemplating doing so.
"There is no doubt that federal loans are a better deal for American students and families," said Durbin. "However, with many for-profit colleges pressuring students into private student loans, many students and their families are not informed of the difference."
"With student loan debt at a record level, we must empower students to make informed decisions about how they finance their education, especially when it comes to the risks of private loans, which can sink students into financial quicksand and are not dischargeable in bankruptcy," said Tom Harkin.
The Know Before You Owe Act of 2012 would require private lenders to:
* Certify with the borrower's school that the student is enrolled and the amount the student is eligible to borrow;
* Provide the borrower with quarterly updates on their loans, including accrued but unpaid interest and capitalized interest; and
* Report information to the Consumer Financial Protection Bureau about their student loans.
NCUA APPROVES 19 MERGERS,
TROUBLED CUS A TARGET
ALEXANDRIA, Va.-NCUA approved 19 more mergers, half of which include an ailing CU being merged into a healthy one. Among the mergers approved: $55-million Bellwood FCU, Richmond, Va., with $125-million Henrico FCU; $27-million Roanoke County Schools FCU with $34-million Roanoke Valley FCU; Frederica FCU, and $18-million CVPS Employees' FCU, Rutland, Va., with $290-million Heritage Family FCU. Troubled CUs being merged out: Ellwood City Holy Redeemer Parish FCU, Ellwood, Penn. (into Freedom United FCU); Kenrick FCU, Haverton, Penn. (into Trumark Financial CU); EWOD FCU, New Castle, Del. (into Union Building Trades FCU, N.J.); Crestmont Baptist FCU, Willow Grove, Penn. (into Freedom FCU); Moorehead (Minn.) FCU (into Central Minnesota FCU); H.B.E. FCU, Seward Neb. (into Liberty First FCU); and Rockford (Ill.) Newspapers FCU (into Rockford Bell FCU).
