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Federal Housing Finance Agency (FHFA) Director Mel Watt told the Senate Banking Committee yesterday that the agency plans to propose a new risk-based capital rule in order to assess relative risks in different mortgage loans categories.

Watt addressed the proposal in his opening remarks, and Senate Banking Committee Chairman Mike Crapo, R-Idaho, further asked if Watt agreed that, "considering the size and the role that guarantors would play in our financial system," substantial and robust capital standards are needed.

"I do, and I think that's one of the reasons we are undertaking this proposed capital rule to get the public, members of this committee and the House committee, and other stakeholders involved in this discussion so that those appropriate capital standards can be set, not only for Fannie and Freddie in the present, but for guarantors going forward," Watt responded.

Watt, during his testimony, repeated his belief that the GSEs' conservatorships are "unsustainable" and noted that the capital standards proposal would be on hold until the entities were removed from conservatorship.

The Treasury Department and FHFA struck a deal in December that allowed the GSEs to reinstate $3 billion in their capital reserves, an action supported by NAFCU as it would reduce their need to draw taxpayer funds. NAFCU is also monitoring draft legislation from Senate Banking members Bob Corker, R-Tenn., and Mark Warner, D-Va., that outlines new roles for Ginnie Mae and the FHFA, while establishing conditions for transition from a GSE model, to one with multiple guarantors and guaranteed access for small lenders.

Throughout the hearing, Watt also discussed various efforts underway at the FHFA and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to address the lack of affordable housing, including the Housing Trust Fund and duty-to-serve rule that help low-income families and those in rural areas obtain mortgages.

The FHFA released the GSEs' plans to meet duty-to-serve requirements in December, which took into account recommendations from NAFCU related to the number of rural housing loans the GSEs plan to purchase and a request for the GSEs to work more closely with credit union lenders and aggregators.

Responding to a question from Sen. Doug Jones, D-Ala., about the importance of 30-year fixed mortgages, Watt agreed that consolidating to a 15-year mortgage would create higher monthly payments and potentially price some borrowers out of the market. Watt also said adjustable-rate mortgages give borrowers less certainty about the future and their ability to repay.

NAFCU President and CEO Dan Berger met with Watt Monday to discuss the FHFA's efforts to strengthen the housing market and advocated for the creation of a pilot program to ensure a secondary market for affordable mortgage options.

NAFCU remains engaged with lawmakers and agency officials to advance the association's core principles for housing finance reform.