Letter to Reps Oxley, Frank, Kanjorski and Baker Regarding the Current Legislative Proposals to Reform the Government-Sponsored Entities (GSEs)
May 24, 2005
The Honorable Paul E. Kanjorski
U.S. House of Representatives
2188 Rayburn House Office Building
Washington, DC 20515
Dear Representative Kanjorski:
On behalf of the Credit Union National Association (CUNA) and America's 86 million credit union members, I am asking you to consider our views regarding the current legislative proposals to reform the government-sponsored entities (GSEs), specifically Freddie Mac and Fannie Mae. CUNA believes the GSEs perform a critical role in our nation's housing system and help credit unions to provide their members with affordable mortgage services.
However, there are issues currently being debated that we believe could adversely affect credit unions and smaller financial institutions. One concern is what is commonly referred to as the "bright-line" proposal, which could prevent Freddie Mac and Fannie Mae from having any role before loans are closed and funded.
This could preclude many GSE activities that have increased access to mortgage credit and have enhanced competition. Examples include the automated underwriting systems developed by Freddie Mac and Fannie Mae that have enabled smaller lenders to participate in the secondary market on an equal footing with the large financial institutions. Another example may be the arrangements in which lenders enter into commitments with GSEs for the purchase of a fixed amount of mortgage loans at a particular rate before the specific loans are identified or closed, which permits lenders and the GSEs to manage interest rate and credit risk and permits homebuyers to lock in interest rates before settlement. It is our understanding that there may be an amendment that would address our concern by granting the new regulator the authority to define the term "originate" in a way that would protect these activities.
We are also concerned with the proposals that may impact new programs offered by the GSEs. In addition to their role in the secondary market, the GSEs have supported innovation in mortgage products and programs, as well as technological improvements that address housing needs.
Currently, the Department of Housing and Urban Development (HUD) requires prior approval of these programs and products that are different than those that have been previously approved. The possible concern here is that further restricting the ability of the GSEs to offer new programs without prior approval could result in an enhanced regulatory process to obtain such approvals, with the result that this could hinder new programs, activities, or products that benefit the marketplace, including credit unions. We are pleased that the bill to be considered in mark-up appears to satisfy this concern.
Thank you for considering the views of CUNA and its' member credit unions as you move forward in this debate regarding the reform of the GSEs.
Daniel A. Mica
President & CEO
Credit Union National Association