Apple’s Harwell Outlines Key Issues for Credit Unions in the Housing Finance
Reform Debate at Senate Banking Committee Hearing
Consumers will be Impacted by Proposed Changes to Secondary Mortgage Market
FAIRFAX, Va. -- November 8, 2013
At a hearing before the Senate Banking Committee on Tuesday, John Harwell,
associate vice president of risk management for Apple Federal Credit Union
(Apple), emphasized the importance of consumer access to housing loans and
other important points as the committee heard testimony from the credit union
industry on secondary mortgage markets. This testimony is in relation to the
government’s consideration of how to prevent another financial crisis like the
one in 2008 that resulted in banks defaulting and consumers losing their homes
to foreclosure, as tax payers were forced to bail out the big bank culprits.
Specifically, Harwell’s testimony addressed provisions in S. 1217, the
“Housing Finance Reform and Taxpayer Protection Act of 2013.”
“When the government is considering major changes in the way financial
institutions provide loans, they need to know how the industry is impacted and
in turn how consumers could be affected,” explained Harwell. He shared six key
points that are of concern to Apple and the credit union industry.
1.Consumers, especially in rural areas, will have less access to loans or
will have to pay more for them if credit unions and community banks can’t
mitigate their risk in secondary markets. Credit unions hedge against
interest rate risk in part by selling products for securitization on the
secondary market—a key component of safety and soundness. Harwell
emphasized that lenders must have unfettered access to secondary market
sources, including Fannie Mae, Freddie Mac, Ginnie Mae and Federal Home
Loan Banks as they are valuable partners for credit unions who seek to
hedge interest rate risks by selling their fixed-rate mortgages to them on
the secondary market. This allows credit unions to better manage risk and
reinvest those funds into their membership by offering new loan products
or additional forms of financial services.
2.Credit unions need to preserve their servicing rights, meaning they will
continue to work directly with their members, rather than the second
mortgages being serviced by Freddie Mac or others. Harwell told the
committee that credit unions want to ensure that relationships with their
members are maintained, as that is a key differentiator between credit
unions and banks.
3.Consumers will be required to pay higher costs for credit if fees for
small lenders to join the proposed Federal Mortgage Insurance Corporation
(similar to FDIC or NCUA) to insure small lenders is too high. Small
lenders will be forced to pass along these fees to customers.
4.Credit unions need flexible underwriting standards that will allow them to
decide how best to serve their members and the level of risk that is
appropriate in making loans. These standards translate into fair pricing
and fee structures that reward loan quality. Because credit unions
originate a relatively few number of loans compared to others in the
marketplace—they cannot support a pricing structure based on loan volume,
institution asset size, or any other geopolitical issue that will lend
itself to discrimination and disadvantage their members-owners.
5.Because Congress cannot flip a switch and turn off access to the secondary
market, adequate transition time to a new housing finance model is
necessary. If Congress chooses to do away with Fannie and Freddie, both
entities should be allowed to remain in operation until the new entity is
up and running, with a six month overlap. If the new entity is not ready
then lenders may be afraid to sell to the secondary market and that means
consumers may not have access to mortgage loans.
6.An explicit government guarantee on mortgage backed securities is
important to provide certainty to the market, especially for investors who
will need to be enticed to invest in these securities and facilitate the
flow of liquidity in times of economic uncertainty. Without the government
guarantee many small lenders will stop making mortgage loans and that will
drive up the cost of credit and make it harder for consumers in rural
areas to get mortgage loans.
“Consumers and industry have a lot at stake as the government determines how
it will reform the home mortgage market,” says Harwell. “At Apple, we are
watching the wrangling of the government and providing insight on how changes
will impact both of these stakeholder groups.”
Apple Federal Credit Union’s Mission: Through a lifelong partnership with
anyone touched by education, Apple FCU helps members achieve their dreams by
offering competitive financial solutions, with dedicated personal service.
Apple exists, not for profit, but for the benefit of its members.
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