CUNA Comment Letter

GSE Housing Goals

December 22, 2004

Rules Docket Clerk
Office of General Counsel
Room 10276
Department of Housing and Urban Development
451 Seventh Street, SW
Washington, DC 20410-0500

RE: GSE Housing Goals – Advance Notice of Proposed Rulemaking - Docket No. FR-4960-A-01

Dear Sir and Madam:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the advance notice of proposed rulemaking (ANPR) issued last month by the Department of Housing and Urban Development (HUD). In the ANPR, HUD requested comment as to how single-family refinance mortgages should be treated in connection with the affordable housing goals of Fannie Mae and Freddie Mac in those years in which single-family refinances are particularly high. CUNA represents nearly 90 percent of our nation’s approximately 9,300 state and federal credit unions.

In the recently released final rule on the GSE’s affordable housing goals for calendar years 2005-2008, HUD raised the current 50 percent low- and moderate-income goal to 56 percent in 2008, the 31 percent underserved areas goals to 39 percent in 2008, and the more targeted, special affordable housing goal from 20 percent today to 27 percent in 2008. We appreciate that HUD reduced certain goals from those originally proposed in response to industry comments. However, market experience has shown that the affordable housing goals are extremely difficult to achieve when single-family refinances are high. Changes in the levels of single-family refinance mortgages change the size of the affordable housing goals market. As single-family refinances rise, the percentage of goals-eligible households in the market declines. This is because higher-income households refinance more readily and goals-rich multifamily units decline as a share of the total market.

We understand that HUD assumes the share of refinance mortgages will only reach a level of 35 percent of all single-family mortgage loans. However, refinance mortgages as a percentage of single-family mortgages have rarely been this low in recent years and have, on average, been significantly higher.

We recognize that the decline in interest rates in recent years has resulted in significant refinancing activity. However, if the refinancing activity in future years remains significantly above 35 percent, then the difficulty of meeting the housing goals may still be a problem.

We urge HUD to examine alternatives in order to alleviate this potential problem. One option may be to remove single-family refinance mortgages altogether from the housing goals scoring calculation. Another option may be for HUD to impose a refinance cap or incorporate some mechanism that will make adjustments when refinancings are not at or near the 35 percent threshold, as envisioned by HUD. For example, in years in which refinancings comprise a large share of the single-family market, HUD could re-weight single-family refinance mortgages in the housing goals scoring calculation so that they do not climb above a certain threshold.

Thank you for the opportunity to comment on the proposal regarding refinancings and their impact on the affordable housing goals. If you have questions about our comments, please contact Senior Vice President and Associate General Counsel Mary Dunn or me at (202) 638-5777.

Sincerely,

Jeffrey Bloch
Assistant General Counsel