Feb. 17, President Obama signed a controversial $787 billion stimulus package designed to pull America back from the economic brink. Any way you slice it, the package was a major victory for the Obama administration less than a month into the new presidency and creates an overwhelming amount of spending and tax cuts intended to create jobs and get the economy moving.
Time will tell how effectively the stimulus package puts Americans back to work and addresses the housing-led recession, but in the early stages of analyzing the package’s many provisions, it appears the credit union industry could benefit in several areas; particularly in lending.
The Homeowner Affordability and Stability Plan, the section of the stimulus package aimed at assisting between seven and nine million homeowners and warding off the negative impact of foreclosures on communities, consists of three parts. These include:
- Refinancing for responsible homeowners who are suffering from falling home prices
- A $75 billion homeowner stability initiative
- Strengthening confidence in Fannie Mae and Freddie Mac to support low mortgage rates
If these and other mortgage-related elements of the stimulus package work as planned, the general housing market should improve and credit unions could see an increase in mortgage lending. There are many measures by which the stimulus package addresses these goals, but a few stand out. For example, first-time homebuyers can receive a refundable tax credit equal to 10 percent of a home's value (maximum of $8,000) for purchases made until Dec. 1, 2009. Also, the Treasury Department will increase its funding commitment to Fannie Mae and Freddie Mac in order to allow these institutions to expand their mortgage portfolios by $50 billion to $900 billion. These items should have a positive effect on a housing market that has been truly struggling, with sales of existing homes recently reaching a 12-year low.
Separately, there is some good news for small businesses and credit unions that work with Small Business Administration (SBA) 7(a) and 504 lending. The stimulus package raises the percentage of a loan that SBA can guarantee to 90 percent from 85 percent. This helps credit unions because the guaranteed portion of such loans does not count toward the member business lending cap of 12.25 percent of assets. $30 million has been put toward SBA’s microloan program, which provides loans and technical assistance for lower-income entrepreneurs and laid-off workers starting their own business. Fees on SBA-backed loans have also been eliminated for borrowers.
These are all positive steps toward economic recovery, and it’s only the beginning. The economic stimulus package is vast and it will take time to sort through its many facets to determine what is meaningful for credit unions. The initial reaction from industry analysts and the few items mentioned above lead us to believe that the package will be helpful on the lending side, at the very least. The new Congress will certainly continue to address the need for further regulation of financial services during this session, but the stimulus package at this point appears to be a welcome boost to mortgage and small business lending during an otherwise challenging year.
MCUL has created a Web page housing summaries and analysis of the stimulus package, which is updated as new information becomes available. This page can be found in the “Governmental Affairs” tab on the MCUL Web site, www.mcul.org. We will continue to communicate relevant information on the stimulus package as we learn more.