FHFA Proposal Would Lock Credit Unions Out of Key Program: Trades

The FHFA would prohibit credit unions from participating in a key Home Loan Bank program because the proposed definition of “financial institution” does not include them, credit union trade groups warned this week.

The controversy flared, as Senate Banking Chairman Mike Crapo (R-Id.) outlined his own goals for a comprehensive overhaul of federal housing programs.

Although they did not charge that the FHFA purposely intended to leave credit unions out of a new proposal to set goals for Home Loan Banks, the trade groups said the unintended consequences of the rule could have a dire impact for credit unions.

The problem is that program for small institutions define eligibility as institutions that have $1.173 billion in assets and are ensured under the FDIC. Since credit unions are ensured through the NCUA, they would be ineligible for the program.

“NAFCU is optimistic that the FHFA did not intend to exclude credit unions as 5,185 credit unions, or 95 percent of the credit union industry, have assets under $1.173 billion,” Ann Kossachev, NAFCU’s director of regulatory affairs said.

She added, “If the FHFA did intend to exclude credit unions from this new housing goal, then NAFCU must vehemently oppose this portion of the rule.”

Kossachev, said many credit unions rely on the home loan bank system for liquidity purposes.

The FHFA is seeking comment on proposed Home Loan Bank housing goals.

One section of the rule states that a “new small member participation housing goal would recognize that smaller lenders are well-positioned to reach borrowers with affordable housing needs.”

Many credit unions that would fall under the “small” threshold of having less than $1.73 billion in assets rely on their Local Home Loan Bank in facilitating mortgage credit through programs such as the Acquired Mortgage Asset Program, said Mitra Wilson, CUNA’s senior director of advocacy and counsel.

She added that thousands of credit unions are members of the Federal Home Loan banking system.

Members of Congress have said they will be taking a comprehensive look at federal housing programs during this Congress.

On Friday, Senate Banking Chairman Mike Crapo (R-Id.) released a list of goals he would like to accomplish as part of that effort.

“We must expeditiously fix our flawed housing finance system,” Crapo said. “My priorities are to establish stronger levels of taxpayer protection, preserve the 30-year fixed rate mortgage, increase competition among mortgage guarantors, and promote access to affordable housing.”

He said he wants to significantly increase the role of private risk-bearing capital, while establishing increased “layers of protection” between mortgage credit risk and taxpayers.

Crapo also said he wants to ensure a level playing field for originators of all sizes and types, while also locking in uniform, responsible underwriting standards and promoting access to mortgage credit including in underserved markets.

Commenting on Crapo’s goals, Banking panel ranking Democrat Sherrod Brown of Ohio said that any effort to overhaul housing programs must first address the affordability crisis facing renters and homeowners.

“Too often Congress and the White House have put Wall Street ahead of working people, and we cannot let that happen when it comes to the stability of our housing market,” said Brown added. “Failure to put working people first would threaten access to affordable homeownership and rental housing, put the viability of the 30-year mortgage at risk, and hit lower income communities, communities of color, and rural Americans particularly hard.”

House Financial Services Chairwoman Maxine Waters (D-Calif.) also said she wants to ensure that any legislation expands and supports affordable housing, while also tacking the homelessness problem.

NAFCU President/CEO B. Dan Berger said he was pleased that Crapo recognized “the need for fair pricing and access for financial institutions of all sizes.” He said NAFCU will be working to ensure that credit unions are protected in any housing overhaul plans.