A PATH in Need of Resistance

With what appears to be lightening speed for Congress, the Protecting American Taxpayers and Homeowners Act (affectionately known as the PATH Act), is headed to the floor of the House of Representatives. The PATH Act brings Fannie Mae and Freddie Mac to an end and attempts to create a sustainably housing finance system. Sounds okay to me as long as Credit Unions are part of the solution. However, this bill differs quite a bit from its counterpart the Corker-Warner bill. First, the PATH Act appears to be partisan legislation, led by the Republicans. Voting in committee was along party lines. Whereas, the Corker-Warner bill was a more bi-partisan effort.

Both bills bring about the wind down of the GSEs and attempt to create a structure for housing finance in America that will protect taxpayers from the huge bailouts we experienced with Fannie and Freddie. The PATH does not provide a government guarantee to act as a back stop in the event of a disastrous housing market, and attempts to aggressively bring private capital back into the mix. In doing so, it puts Credit Unions and other smaller lenders at a disadvantage to our larger, for-profit counterparts. Most Credit Unions, even the largest ones and the CUSOs that aggregate Credit Union mortgage loans, lack the scale to issue loans directly to a private secondary market. And therefore, most of us will end up with one of three options: 1) Put everything in portfolio assuming we can handle the interest rate risk and  NCUA won’t have a major hissy fit, 2) sell our mortgages to larger aggregators – this sounds like big banks to me or 3) stop making mortgage loans. None of these options are very good and certainly none would allow a Credit Union to be memberlicious with mortgage lending.

It also most likely means the end of the 30 year fixed rate mortgage or at least a substantial shrinking of that product market. Yes, few homeowners live in a home for 30 years so in reality few use a 30 year mortgage the way it was meant. But most Americans want a fixed rate option, especially middle to lower income Americans that Credit Unions serve. So does this mean ARM lending returns to vogue. I don’t think so. Since the housing crisis, asking a borrower or a housing advocate about an ARM loan solicited the same reaction as if you asked them if they wanted to eat glass. The 30 year mortgage allows borrowers to create a sense of security in the personal finances. It gives them a long time to pay for their home and at a monthly payment that will never change (unless of course property taxes increase, which is another story). Our housing finance system and our economy depend on the 30 year fixed rate market and Congress needs to find a way to preserve it.
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