Calling it a net plus for the consumers and the housing market, Affinity FCU President/CEO John Fenton urged lawmakers to ensure that any changes in the housing finance system don't jeopardize the existence of the 30-year mortgage.
"It's consumer friendly, straightforward and easy to understand,'' Fenton said during testimony at an Oct. 20 hearing of the Senate Banking Committee. "It's necessary for the health of the housing market that it remain a viable product."
Fenton, who testified on behalf of NAFCU, said to ensure its future viability the government should revamp the housing finance system in a way that keeps a strong government presence in the market. He recommended that even if mortgage buyers Fannie Mae and Freddie Mac are shut down, the government continue with two mortgage buyers for competition so credit unions continue to have access to a viable secondary market.
Fenton, whose Basking Ridge, N.J.-based credit union is $2 billion in assets, said a strong secondary market allows institutions such as his to avoid keeping too many mortgages on their books and taking on undue risks. He said that removing government's role would have a destabilizing effect on the market.
In response to a question from Sen. Robert Menendez (D-N.J.), Fenton said that 30-year mortgages aren't the best option for all of his credit union's members but they work with them to find the best product. Fenton highlighted that the housing crisis was caused in part by the failure of some other financial institutions to work closely enough with consumers to put them in appropriate mortgage products.
George Mason University professor Anthony Sanders agreed that the 30-year mortgage is a consumer-friendly product but said that is because of a heavy government subsidy. He suggested that consumers would be better served if they had access to more adjustable rate mortgages that are less expensive.
Sanders also said that 30-year mortgages can be risky for consumers because they don't account for changes in the economy. And at a time of falling housing prices, having such a mortgage can "put people in a negative equity position very quickly."
The hearing is one of a series of sessions that the committee has held on aspects of the housing finance system. There are calls for overhauling the system in part because of the financial difficulties of Fannie and Freddie which caused the government to place them into conservatorship.
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