WASHINGTON –A fund to help victims of the subprime mortgage crisis and a reform of Fannie Mae and Freddie Mac are key components of a bill passed by the Senate Banking Committee last week.
The measure, which passed 19-2, would create an affordable housing fund, paid for by Fannie Mae and Freddie Mac. The fund would provide $500 million for foreclosure rescues in the first year. The measure also tightens regulations of Fannie and Freddie, the main purchasers of mortgages from credit unions. It creates a new regulatory entity, the Federal Housing Finance Agency, which could order Fannie and Freddie to increase their capital. Some lobbyists for credit unions have expressed concern that if Fannie and Freddie were required to keep too much capital on hand, it would make less money available for them to purchase mortgages.
Fannie and Freddie currently hold combined capital of $83 billion but have considerable debt. Recently, Fannie Mae announced a $2.2 billion loss for the first quarter. Freddie Mac announced that it lost $151 million.
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Earlier this month, the House passed a similar measure though its key component, a taxpayer-financed mortgage relief fund, was deemed too expensive by the Bush administration, which threatened a veto. A spokesman for President Bush had favorable things to say about the Senate bill but they would have to study it more carefully before taking a position.
Among the differences between the House and Senate versions is the cap on the size of loans that Fannie and Freddie could guarantee. The House limit is $729,750, while the Senate's is $550,000.
CUNA Vice President for Legislative Affairs Ryan Donovan said they are "supportive of Congress' efforts to get rid of bad actors. But we are concerned about language requiring registration of mortgage originators, as we feel this would create unnecessary regulatory burdens."
NAFCU Associate Director of Legislative Affairs Amanda Slater said the measure, is a workable compromise, but her organization "wants to be sure that all of the programs and products [of Fannie and Freddie] are still available to credit unions." Slater said they will monitor what happens on the Senate floor and during the House-Senate conference committee and work to ensure that their concerns are satisfied in subsequent versions of the measure.
Credit unions that serve mostly underserved populations said the measure will expand capital available to low-income and underserved areas because community development financial institutions would be eligible for Federal Home Loan Bank loans.
Currently, some credit unions can receive these loans but the bill would allow nondepository institutions to apply for them as well, according to Clifford Rosenthal, president of the National Federation of Community Development Credit Unions.
"This will complement what credit unions do in this area," Rosenthal said.
Senate aides said the bill could come to the Senate floor as early as the first week in June, and they would like to work out the differences with the House so that they can send a bill to President Bush before the July 4 recess.
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