Fred R. Becker Jr., president of the National Association of Federal Credit Unions, authored a letter to Ed DeMarco, acting head of the Federal Housing Finance Agency, to express the association's concerns over the FHFA's consideration principal write-downs and to caution against “implementing policies that enable, allow or precipitate strategic defaults.”

“Strategically defaulting on loans is a problem in the housing market and continues to cause credit unions great difficulties,” he wrote. “We are gravely concerned that incorporating principal forgiveness modification as part of borrower-assistance programs would create an incentive for at least some borrowers to strategically default, causing credit unions and their members significant losses that they will not be able to recoup.” 

Becker said credit unions would be specifically affected by the losses because they are unable to tap into markets to raise capital in order to support the revenue-generating programs that would offset the losses.

The letter also used DeMarco’s own words against him, quoting him as saying, “A key risk in principal forgiveness targeted at delinquent borrowers is the incentive created for some portion of these current borrowers to cease paying in search of a principal forgiveness modification.”

The letter concludes by urging DeMarco not to instate the policy as it would “ultimately hurt the housing market and cost credit unions and their members greatly.”