How Senate’s housing reforms would impact credit unions

by. Henry Meier

This one goes in the will miracles never cease category.

The moribund debate about the future of the U.S. housing market was jolted to life yesterday when the U.S. Senate Banking committee announced agreement on bi-partisan legislation to reconstruct the housing industry.  There is no issue pending on the legislative horizon that could have a more direct impact on credit unions.

First, a refresher on where we stand with housing reform.  Historically, Fannie and Freddie have performed two major functions for credit unions.  They ensure that there is a market for selling their mortgages and, since Fannie and Freddie bundle these mortgages into securities, they help keep these mortgages competitively priced   Ironically, since the mortgage meltdown, to which Fannie and Freddie contributed, the housing market has become more not less dependent on these GSEs.  For example, under Dodd-Frank, a qualified mortgage includes any mortgage that these entities are willing to purchase.  This is a huge help for credit unions since Fannie and Freddie are willing to purchase mortgages that exceed the debt-to-income cap otherwise required for qualified mortgages.  However, this QM exemption lasts only as long as do Fannie and Freddie.

In yesterday’s announcement, the Senators said that the bi-partisan effort will be based on legislation previously introduced, S.1217.  As outlined in the press release, the Senate’s proposal scraps Fannie and Freddie and replaces them with a privately funded securitization platform,  In addition, the agreement announced yesterday would create “a mutual cooperative jointly owned by small lenders to ensure that lenders of all sizes have direct access to the secondary market so community banks and credit unions are not at the mercy of their larger competitors when Fannie Mae and Freddie Mac are dissolved.”

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