Congressman to CUNA: My Bad
So, it ends up that yesterday’s biggest story isn’t about a bill to effectively end the credit union industry by doing away with its tax exempt status. Instead, the Wall Street Journal reported that the Federal Housing Administration is once again on the verge of needing a bailout from the American taxpayer. If this is true, and looking through some previous blogs I would note that the Wall Street Journal has made similar assertions in the past, it would mean not only that taxpayer funding would have to prop up the agency for the first time in its 78 year history, but that housing policy would finally be on the legislative agenda. Depending on your perspective, the FHA is either a villain of scandalous proportions or a shining light in America’s housing industry. Here is why.
The FHA insures mortgages of individuals who may not otherwise qualify for a conventional mortgage. The homeowners put down as little as 3.5% at closing and they pay back the insurance premium as part of the mortgage payments. When Fannie and Freddie effectively went bankrupt at the start of the mortgage crisis and were taken over by the United States Government the FHA essentially filled the void left by its sister entities. Today, it is responsible for one third of all mortgages in the country and together with Fannie and Freddie these government created entities are responsible for 90% of the mortgages in this country.
Those inclined to think of its behavior as scandalous would ask what other entity would increase lending during a mortgage crisis? While artificially propping up the housing market, it has just put the American taxpayer on the hook and put off the day of reckoning for the government to actually decide what type of housing support to have in this country and how to pay for it.
For those inclined to see it as a beacon of sanity, it is safe to say that as bad as the housing market has been for more than five years now it would have been much, much worse without the FHA. In addition, according to the Wall Street Journal, a disproportionate number of FHA’s delinquencies are on mortgages dating to early in the crisis. Presumably this means that the worst may be over if only we can get through this rough spot. I’ll let you decide whether you think the FHA should be considered a friend or foe of the American consumer, not to mention the credit union member who wants to get a house. But I do know that if the Treasury has to extend a lifeline to this institution it will be seized on as an example of government overreaching and hopefully start a discussion about what the future of housing policy should look like in this country.
Congressman to CUNA: My Bad
I didn’t think anything could take my attention away from the Peyton Place drama unfolding in Tampa Bay involving the top echelon of our military and intelligence establishment, but I was jarred back into reality when I saw the news bulletin from CU Times announcing that Florida Republican Congressman Dennis Ross had put forward a bill that would end the credit union tax exemption for both state- and federally-chartered institutions. In fairness to the Congressman, he actually put forward the recommendations of the Boles-Simpson Commission on deficit reduction, which, as I pointed out in a recent blog, included ending the tax exemption for credit unions.
We can all breathe easy. According to CUNA, conversations with staff revealed that the proposal eliminated the tax exemption as a result of a drafting error and that if the bill ever did start moving it would be amended. Even assuming that the Congressman mistakenly proposed effectively doing away with our industry, the incident demonstrates just how fluid the next several weeks of congressional action is going to be. If there is going to be a deal on deficit reduction, it is going to be a lot of last-second horse trading and a lot of it will take place behind closed doors.
New York Senate Republicans move closer to majority coalition
Speaking of late night horse trading behind closed doors, the New York State Senate Republicans are now within one seat of putting together a majority in the Senate with absentee ballots in one crucial upstate seat still being counted. Senator-elect Simcha Felder, a conservative Democrat from Brooklyn will caucus with the Republicans. If the Republicans don’t obtain a majority, the balance of power will hinge on the four Senate Democrats who created an Independent Democratic Caucus. Stay tuned, I’m sure there is more fun to come.