NCUA announces mortgage help plan for CU members

ALEXANDRIA, Va. (11/19/08)—National Credit Union Administration (NCUA) Chairman Michael Fryzel unveiled an initiative Tuesday to help credit union members, who are experiencing mortgage-related financial difficulties, preserve their homeownership.

The proposed new program, called Credit Union Homeowners Affordability Relief Program (CU HARP), would allow the NCUA, through its Central Liquidity Facility (CLF), to work with credit unions and their members to temporarily lower monthly mortgage payments.

In addition to NCUA Board approval, the agency said CU HARP must also receive sign off by the U.S Treasury Department and the Federal Reserve Board.

According to an NCUA announcement, the CLF would provide credit unions with funds, borrowed from the Treasury, at lower rates than otherwise available through private sources. In turn, credit unions are expected to pass the entire rate reduction to struggling low- and moderate- income borrowers.

The credit union, in exchange for the reduced likelihood of borrower default on the mortgage, would also match the rate break, doubling the benefit to struggling homeowners, Fryzel said of the plan.

The agency said CU HARP will be administered at no cost to taxpayers: CLF loans are made to credit unions on a fully secured basis, and all advances received by the CLF will be repaid to the Treasury's Federal Financing Bank, with interest. The program will receive initial funding of $2 billion.

A credit union would have the option of setting the period of the rate break, from three to five years, and would be able to create a 40-year maturity and/or reduce the principal balance to increase mortgage affordability, said the agency announcement.

"My principal reason for advancing CU HARP is simple: The consumer must not be left out of the broader government efforts to mitigate the housing and credit market dislocations," stated Fryzel.

"CU HARP is an effort to foster a solution whereby the NCUA and credit unions work together to assist distressed borrowers. It represents what I believe to be an innovative and practical use of federal homeowner assistance that will also benefit credit unions and the market.

"At the same time, the standards and requirements for CU HARP participation will be stringent and will enable NCUA to be responsible stewards of any public funds used. CU HARP will be a 'win-win' for all involved," the chairman added.

Borrowers participating in CU HARP would be subject to eligibility standards, including income level, default or danger of default, and required occupancy.

The Credit Union National Association (CUNA) welcomed the NCUA's proposed innovation.

CUNA President/CEO Dan Mica said, "Although credit unions did not make the kind of mortgages that have done so much harm to borrowers, many credit union members are suffering because of a weak economy and collapsing housing markets.

"This plan – a product of creative thinking -- is a welcome addition to the tools credit unions are already using to help their members face down financial challenges. In fact, some credit unions that many of these members belong to could likely benefit from assistance themselves."

He added that a further, welcome addition would be for the agency to adopt a 'troubled asset relief program' "for credit unions, by credit unions – to help those credit unions in distressed areas that are bearing the brunt of the collateral damage from the real estate crash."

courtesy of cuna.org