Fryzel Fashions Mortgage Relief Plan

WASHINGTON — Credit unions could have access to $2 billion from the Central Liquidity Facility to help members who are having trouble with their mortgages.The plan unveiled by NCUA Chairman Michael E. Fryzel, which must be approved by the NCUA Board, the Treasury Department and Federal Reserve, is called the Credit Union Homeowners Affordability Relief Program (CU HARP). He said it is too early to say how many credit union members would benefit from the program or whether they may have to draw additional money from the fund to provide additional help.“It’s an apple pie-type program that will go far to help distressed homeowners,” Fryzel said in an interview. “It’s a loan to credit unions, not a handout.”Borrowers participating in CU HARP would be subject to eligibility standards, including income level, default or danger of default and required occupancy. The credit union would have the option of setting the period of rate break between three and five years and would be able to create a 40-year maturity and reduce the principal balance to increase mortgage affordability. The rate break is the cost difference between obtaining the funds from a private source and from Treasury, the savings on which must be passed down to the borrower.Fryzel said the strict eligibility requirements should guard against consumers who might try to game the system by purposely missing a mortgage payment they could afford just to get their mortgages lowered.He said he had received “favorable assessments” of the plan from officials of the Federal Reserve and the Treasury Department but did not know how long the approval process would take at those agencies.CUNA President/CEO Dan Mica praised the plan. “This plan-a product of creative thinking-is a welcome addition to the tools credit unions are already using to help their members face down financial challenges. In fact, some credit unions that many of these members belong to could likely benefit from assistance themselves,” he said.NAFCU President/CEO Fred Becker also supported the plan. “As we have strongly advocated in the past, we believe it is critical that the health of the National Credit Union Share Insurance Fund is not jeopardized. NAFCU deeply thanks you for implementing a program that does not draw on funds from the NCUSIF and consequently place the NCUSIF at increased risk,” he said in a letter to Fryzel.The facility can lend the funds because of an act of Congress earlier this year. In September, when lawmakers passed the continuing resolution to fund the government, it contained a provision that eliminated the cap on the CLF’s lending authority. It had been capped at $1.5 billion since 2001, but the change allows the facility to lend money to credit unions based on the formula established in the Federal Credit Union Act, which is estimated to be $41.5 billion.Between 2001 and Aug. 31, 2008 there were three loan requests totaling $20 million. Since Sept. 1, credit unions have applied for $2.4 billion in loans from the facility and received $1.7 billion.Congress created the CLF in 1978 and the Treasury Department is authorized to lend it up to $500 million if it is determined that the facility doesn’t have enough money to meet the liquidity needs of credit unions. Membership is voluntary, and credit unions that join purchase stock in it.Lawmakers have expressed frustration that the Bush administration hasn’t done more to help consumers who are having difficulty making mortgage payments.Treasury Secretary Henry Paulson has refused to use any funds from the troubled asset relief program for such relief. A few days before Fryzel issued his plan, FDIC Chairman Sheila Bair came up with a proposal to save 1.5 million mortgages in the next year at a cost of $24.5 billion. But the Treasury Department has opposed using any of the funds allocated to infuse capital in financial institutions to help individuals save their homes.Under that plan, borrowers who have missed at least two mortgage payments could be eligible for in a reduction in interest. It would require consumers to spend no more than 31% of their income on mortgage payments. The government would pay loan servicers $1,000 to cover expenses for each loan modified and thegovernment would guarantee half the cost if the borrower defaults.–[email protected]