December 11, 2012
The Honorable Robert P. Corker, Jr.
United States Senate
Committee on Banking, Housing & Urban Affairs
Washington, D.C. 20510
The Honorable David Vitter
United States Senate
Committee on Banking, Housing & Urban Affairs
Washington, D.C. 20510
Dear Senators Corker and Vitter:
On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association exclusively representing the interests of our nation’s federal credit unions, I write today as a follow-up to the recent Senate Banking Committee hearing on Federal Housing Administration (FHA) oversight featuring testimony from Department of Housing and Urban Development (HUD) Secretary Shaun Donovan.
During the course of the hearing, you addressed FHA’s current policy with respect to those who default on their mortgage not being able to obtain another FHA loan for a minimum of three years. As you also addressed, comparatively, Fannie Mae has instituted a policy that prohibits a borrower that has strategically defaulted from obtaining a Fannie Mae-backed mortgage for seven years. NAFCU member credit unions appreciate your raising this important topic, one that NAFCU has long had concerns about with respect to strategic defaults. As detailed in the attached letter from February, NAFCU formally asked officials at HUD and the FHA to institute policies as soon as possible to discourage strategic defaults. Our concerns in this regard,were further heightened by advertisements in certain areas of the country encouraging strategic defaults given the FHA’s three year minimum.
The increasing trend of homeowners who have the capacity to make their mortgage payments, but instead choose to default, is troubling to community based financial institutions like credit unions. Strategic defaults are prolonging the recovery of our troubled housing market and should not be tolerated under the housing policies of the federal government.
The consequence of FHA’s shorter three-year lockout period, among other things, is that a borrower with a Government Sponsored Enterprise (GSE)-backed loan can strategically default on their loan and then after three years can obtain a FHA loan. Clearly this policy fails to provide adequate disincentive against strategic default in the housing market. In addition, it advertises the FHA as the place to obtain another loan even after a borrower fails to meet previous obligations, which in the case of mortgages backed by the GSEs, become obligations to the taxpayer. Considering the committee’s concerns about the solvency of the FHA, ensuring the FHA is not propped-up as a safe haven for those who strategically defaulted on pervious mortgages, is a critical part of the safety and soundness conversation.
NAFCU has long supported the important role that FHA plays in our nation’s housing market. The FHA’s viability is crucial going forward, especially in providing an option for those who otherwise are unable to obtain a mortgage in the conventional mortgage market. The central mission of the FHA must continue to be one that focuses on this demographic, which includes first-time homebuyers who may not have the down payment necessary to obtain a conventional mortgage.
Despite not engaging in the unscrupulous activities that often led many borrowers into mortgages they could not afford, credit unions and their members have been greatly affected by the declining housing market. Like a vast majority of homeowners, many credit union members have seen the value of their homes decline. For members confronted with financial difficulties, credit unions have been second to none in finding creative yet responsible solutions, including refinancing and loan modifications, to help them keep their home.
Thank you for using last week’s hearing to raise this important issue. We are hopeful that you will continue to examine this issue and the impact it is having on credit unions and other community based financial institutions. If my colleagues or I can be of assistance to you, or if you have any questions regarding this issue, please feel free to contact myself or NAFCU’s Vice President of Legislative Affairs, Brad Thaler, at 703-842-2204.
Sincerely,
Fred R. Becker, Jr.
President and CEO