House Bill Would Force FHFA Withdrawal of FHLB Rule on Membership
Four members of the House introduced a bill last week that would require withdrawal and study of the Federal Housing Finance Agency’s proposed rule on Federal Home Loan Bank membership.
H.R. 3808, introduced by Reps. Blaine Luetkemeyer, R-Mo., Denny Heck, D-Wash., Patrick McHenry, R-N.C., and John Carney, D-Del., has the support of the Mortgage Bankers Association.
“The Federal Home Loan Bank System is a critical part of our housing infrastructure, providing its members with a strong, reliable source of capital to serve the housing needs of their communities,” said MBA President and CEO David Stevens, CMB. “This legislation would preserve today’s membership and prevent costly disruption by ensuring community banks and captive insurers remain members of their regional Home Loan Bank.”
Stevens noted captive insurers facilitate substantial investment in the housing finance market, including by financing the origination and purchase of mortgages and mortgage-backed securities by Real Estate Investment Trusts.
“Mortgage REITs represent a growing and necessary segment of the housing finance market, and their access to the Federal Home Loan Bank System facilitates greater credit availability while simultaneously reducing financial risk to the taxpayer,” Stevens said. “Policymakers and stakeholders must work together to ensure that the System is able to best serve the needs of our evolving housing finance market.”
The FHFA proposed rule, first issued in September 2014, would amend the Federal Home Loan Bank Act regarding the mortgage asset ratio requirement that applies when an institution applies for FHLB system membership. Under the proposed change, the ratio would be changed from a one-time consideration in the application process into an on-going obligation.
MBA and other industry trades groups issued objections to the changes, saying by unilaterally changing the long-standing meaning of the term “insurance company” to exclude captive insurance companies, including REITs, could force many existing FHLB members to be kicked out or face restrictions on financing agreements already in place. The change would also dismiss the desire of well-capitalized, potential members, deeply interested in joining the system.
“FHFA’s proposed rule, if finalized, would permanently exclude these housing-focused members from the system,” MBA and other trade groups said earlier this year in a letter to FHFA. “This would pull the rug out from under an emerging bright spot in today’s housing market at the expense of borrowers who have few financing alternatives.”
