WASHINGTON—Fewer than 100 financial institutions will be negatively impacted by the Federal Housing Finance Agency’s proposal to adjust membership criteria for the Federal Home Loan Banks, according to the agency’s director, Mel Watt.
Watt delivered that message to members of the Senate Banking Committee in response to a question from Senate Banking Chairman Tim Johnson (D-S.D.). The message follows a letter to Watt earlier this week from a bipartisan group of 68 House of Representative members. The group expressed concern that the FHFA’s proposal to revise FHLB membership criteria could jeopardize the banks’ liquidity functions for credit unions and community banks.
NAFCU’s Senior Regulatory Affairs Counsel Angela Meyster noted on the trade association’s website that Watt’s answer only addressed the number of current FHLB members that would be impacted and doesn’t take into account that “the proposal has the potential to impact many more institutions that could potentially join FHLBs, so it could have a broader impact.”
According to NAFCU, Wednesday’s hearing also spurred talk of guarantee fees, mortgage insurance, principal reduction, the overall state of the housing system and the future of government-sponsored enterprises – specifically Fannie Mae and Freddie Mac.
When questioned by the committee on why he had not implemented principal reduction to help underwater homeowners, Watt stated that “responsible” principal reduction is still on the table.
In a letter to Watt on Wednesday, NAFCU Senior Vice President of Government Affairs and General Counsel Carrie Hunt stated: “There is a very real risk that incorporating principal forgiveness modifications into borrower assistance programs will create an incentive for at least some borrowers to strategically default, causing credit unions, and as a result their members, significant losses that they will not be able to recoup.”
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