FHFA opens probe into FHLBanks system

"There's a need for an FHLB system that better reflects today's housing finance market"

FHFA opens probe into FHLBanks system

The Federal Housing Agency (FHFA) has revealed it will be conducting a review of the Federal Home Loan Bank (FHLBank) System to ensure they remain a “critical source of liquidity.”

This fall, FHFA will host two public listening sessions and a series of regional roundtable discussions to consider and evaluate the mission, membership eligibility requirements, and operational efficiencies of the FHLBanks.

FHFA director Sandra Thompson described the function of the banks and its other regulated entities – Fannie Mae and Freddie Mac – “as a reliable source of liquidity and funding for housing finance and community investment.”

The FHLBanks consist of 11 government-sponsored banks that provide liquidity to the members of financial institutions during times of market stress, offering a variety of low-income housing and community development programs.

Read more: FHLBank San Francisco provides $11 million funding to WISH program

“As the Federal Home Loan Banks approach their centennial, FHFA will conduct a comprehensive review to ensure they remain positioned to meet the needs of today and tomorrow,” Thompson said.

Bob Broeksmit, president and CEO of the Mortgage Bankers Association, commented: “MBA applauds FHFA’s announcement to examine the appropriate role of the Federal Home Loan Bank (FHLB) system. We have long supported the responsible expansion of FHLB membership eligibility to better reflect the diverse providers of single-family and multifamily housing finance throughout the country. The banks’ membership framework has only seen piecemeal updates since its creation, and there’s a need for an FHLB system that better reflects today’s housing finance market -- not one from the 1930s.”

FHFA will kick off the public listening sessions with an event on Sept. 29, held in person at the Constitution Center in Washington, DC, with the option to participate virtually. The agency is seeking feedback in six key areas, including:

1. The FHLBanks’ general mission and purpose in a changing marketplace;

2. FHLBank organization, operational efficiency, and effectiveness;

3. FHLBanks’ role in promoting affordable, sustainable, equitable, and resilient housing and community investment;

4. Addressing the unique needs of rural and financially vulnerable communities;

5. Member products, services, and collateral requirements; and

6. Membership eligibility and requirements.

Broeksmit stressed the importance of the securitization process in the housing market and urged the FHFA to include it in the review.

“Today’s housing finance market is also dominated by the securitization process,” he said. “Any comprehensive review of the FHLB System should also include examining the ways in which the banks perform their critical mission as a liquidity backstop by rethinking the type of securitization-related collateral members can pledge. 

“The business activities of these currently-excluded entities are strongly aligned with the FHLB housing mission, and FHLB membership could provide added resiliency to the housing finance system if these entities could participate as members.”