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 Business Wire 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. Contact: Remey Communications Sandra Remey 301-929-3554 (office) 301-467-9024 (cell)
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Apple’s Harwell Outlines Key Issues for Credit Unions in the Housing Finance Reform Debate at Senate Banking Committee
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