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CUNA CUs must have access to secondary mortgage market
WASHINGTON (11/4/11)--Rep. Scott Garrett's (R-N.J.) Private Mortgage Market Investment Act, which was the subject of a Thursday hearing, could create a secondary mortgage market made up exclusively of the largest banks in the country, and could result in credit unions being excluded from that market, the Credit Union National Association (CUNA) has warned.

Thursday's hearing took place before the House Financial Services subcommittee on capital markets and government sponsored enterprises. Garrett's bill would require the Federal Housing Finance Agency (FHFA) to develop underwriting standards and securitization agreements and abolish the risk retention standards set forth by the Dodd-Frank Act. The legislation would also provide new disclosures for mortgage investors and securities purchasers.

FHFA Acting Director Edward DeMarco testified during the hearing, saying that "private capital markets can and should reclaim a prominent portion in providing housing finance." Garrett's proposal "broadens the discussion of how we might do that," he said.

DeMarco said "there seems to be relatively broad agreement that the government sponsored enterprise model of the past, where private sector companies were provided certain benefits and charged with achieving certain public policy goals, did not work." However, he added, there will likely "always be some portion of the housing or mortgage market that will be assisted by government programs, either through direct funding or through guarantees."

He added that any mortgage market must be able to preserve credit availability in times of stress and preserve liquidity in the market and the financial system. DeMarco suggested that governmental bodies could serve as backstops to guard against credit availability or liquidity issues. "These are just some of the issues that will have to be thought through as the process moves forward on building out this framework," he added.

The Obama administration is still considering a range of options for mortgage market reform, including almost completely privatizing the housing finance system, limiting the government's intervention in the mortgage market to times of financial distress, and using a system of reinsurance to backstop private mortgage guarantors to a targeted range of mortgages. Administration officials have said that each of these proposals would shrink the government's role in the mortgage market.

CUNA Senior Vice President of Legislative Affairs Ryan Donovan said it is possible that Garrett's bill may be marked up before the end of this year, but its prospects are unclear after that.  While a number of hearings have been held in the Senate Banking Committee, it is not clear that the Senate will take up comprehensive housing finance reform legislation before the end of the Congress.
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