Newsroom
NAFCU backs 30-year mortgage, sees federal role
 | |
| NAFCU witness John Fenton of Affinity FCU said consumers, economy need the 30-year, fixed-rate mortgage and a government role in the housing finance market. - NAFCU photo |
Oct. 21, 2011 – Any housing finance reform effort must preserve widespread access to the 30-year, fixed-rate mortgage to ensure the best interests of consumers and the housing market, and that requires a continued federal role in housing finance, NAFCU witness John Fenton told lawmakers Thursday.
Fenton, president and CEO of Affinity FCU in Basking Ridge, N.J., testified in a Senate Banking Committee hearing that the 30-year FRM may be more expensive than other products in terms of total cost, but many opt for it anyway because it is "straightforward, easy to understand, and provides for a predictable monthly schedule."
"The existence of private label securitization of real estate loans was a significant factor in the recent housing market crisis," he testified. "Going forward, a totally privatized secondary market will not allocate enough capital because of the inherent risks, both credit and interest rate, without some sort of government guarantee."
Thursday's was the 11th hearing held by the Senate Banking Committee on housing finance reform, and the panel has been working with a specific set of priorities in connection with this issue. Senate Banking Chairman Tim Johnson, D-S.D., said "[m]aintaining the widely available 30-year, fixed, rate, prepayable mortgage" is one of those.
NAFCU shares that goal. During his testimony, Fenton said ensuring consumers a choice of products is good for the economy, and the 30-year, fixed-rate mortgage is the dominant instrument of mortgage originations today. He said privatizing the secondary market will push credit unions out, hasten the end of that mortgage option and hamper economic growth.
Witnesses who favored privatization – a Federal Reserve bank economist and a George Mason University finance professor – said the longer-term, fixed-rate loans are both costlier and riskier for lenders, and that is exacerbated where no prepayment penalty is attached. Sen. Bob Corker, R-Tenn., suggested that a prepayment penalty would be more fair. But Fenton said it would be counter to consumers' interests and economic growth.
"It's how you [view] cost," Fenton countered. In this case, he said, a policy of no prepayment penalty is an investment in "a more vibrant economy."
Sen. Robert Menendez, D-N.J., also expressed doubts that the private market would step up to do the longer-term loans given their lack of involvement to date.
Susan Woodward, president of Sand Hill Econometrics, supports keeping a 30-year FRM option. She added that investors are less concerned about the existence of a prepayment penalty than they are about whether the assets underlying their investments are similar in terms of risk.
The hearing is archived on the committee's website.
Morefrom: