Credit union association opposes 'cramdown'

A leading credit union trade association came out against a compromise draft proposal on a controversial measure that would allow judges to rewrite the terms of home mortgages. Senate Democrats, led by Senate Majority Whip Dick Durbin (D-Illinois), have been trying to strike a deal with a handful of financial industry players, but the issue has been stalled in the upper chamber for more than a month. The policy, known as "cramdown" in the industry, is strongly opposed by major parts of the industry. The board of the National Association of Federal Credit Unions on Wednesday unanimously opposed the cramdown policy.

After the jump, read the letter that the association's president, Fred Becker, wrote to Durbin.

--Silla Brush

April 22, 2009

The Honorable Richard Durbin
United States Senate
309 Hart Senate Office Building
Washington, D.C. 20510

Dear Senator Durbin:

I am writing on behalf of the National Association of Federal Credit Unions (NAFCU), the only national trade association that exclusively represents the interests of our nation's federal credit unions, to share our comments regarding the principles that are being discussed regarding the mortgage bankruptcy title as part of the Senate response to the House-passed version of H.R. 1106, the "Helping Families Save Their Homes Act of 2009."

NAFCU sincerely appreciates all of the hard work you and your staff have done on this important issue. As discussions continue regarding how to address current problems in the housing market, we commend you for your efforts in seeking to provide relief for distressed home owners. We recognize and applaud your leadership efforts in dealing with issues related to the continued fall-out from the subprime crisis and the need to mitigate foreclosures.

NAFCU, however, remains concerned about any legislation that includes broad cram-downs of all mortgages in bankruptcy. We believe that a more targeted approach is better suited to address the issue, and are pleased that the discussions with your staff on this matter have proceeded along such lines. We believe that these discussions have been very productive in moving this legislation forward. Our Board of Directors, however, believes it is important to understand the impact of this critical legislation, and have asked questions about the Administration's modification and work-out plans for subordinate liens, as well as how this legislation and new bankruptcy authority would impact existing Private Mortgage Insurance contracts. Unfortunately, at this time, there do not appear to be details available on these important issues. Without this information, the NAFCU Board of Directors does not believe that they can fully and fairly evaluate how this legislation will impact credit unions. Consequently and very unfortunately, at this juncture, we cannot "support and defend", as your staff has requested of us.

I should note that this does not mean we oppose your efforts to get to a compromise agreement; rather, the NAFCU Board of Directors cannot endorse it in its current form without additional information and details. In particular, we would continue to support the compromise we endorsed last year, that would have bankruptcy modification apply only to subprime or Alt-A (or non-traditional) mortgage loans. Additionally, we would also currently support a broader package of bankruptcy relief that provided a carve-out for loans made by not-for-profit lenders, such as credit unions, housing associations and others, who did not contribute to this current crisis.

As always, we very much appreciate the opportunity to continue to work with you and your staff on this matter and other critical legislation, and we thank you for your continued efforts in addressing our nation's mortgage crisis.

If you or your staff should have any questions on this matter, please do not hesitate to contact NAFCU's Director of Legislative Affairs, Brad Thaler or me at (703) 522-4770. Thank you for your leadership on this very important matter.

Sincerely,

Fred R. Becker, Jr.
President/CEO

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