FHFA sets March deadline for home loan bank community program

Days after proposing home loan bank reforms, Federal Housing Finance Agency Director Sandra Thompson issued guidance to establish a pilot program to help the underserved, signaling that banks must make changes quickly.

Al Drago/Bloomberg

The Federal Housing Finance Agency immediately demanded reforms from the Federal Home Loan Banks.

After proposing major, much-anticipated reforms Report Earlier this week, FHFA issued guidance on how systems that provide liquidity to financial institutions can further assist underserved communities through pilot and voluntary programs.

FHFA said in a statement Thursday Consultation Announcement The boards of the 11 home loan banks are expected to create a framework for implementing pilot and voluntary schemes by March 29, 2024. FHFA wants banks to formalize governance and operating standards to better evaluate these programs.

Immediately following the release of the long-awaited report, the first review of the home loan banking system in 90 years, FHFA Director Sandra Thompson issued guidance indicating the need for rapid change. FHFA has long used pilot programs to make changes to government-sponsored enterprises ultimately more permanent. FHFA’s guidance is part of a broader effort to allow home loan banks to provide public benefits in addition to the system’s core operations liquid to its members.

“FHFA believes that FHL Bank should develop innovative pilot programs and provide voluntary programs to prudently increase support for affordable housing, equity promotion, and community development for underserved and economically disadvantaged populations in their regions, as well as other initiatives, including Through FHL Bank’s core business activities,” the advisory announcement states.

“For example, pilot programs or voluntary programs could be designed to support increased supply of affordable single-family and multifamily housing, help close the racial homeownership gap, address residential climate resiliency improvements, or address other needs,” the announcement states. .”

FHFA said each home loan bank must conduct a needs assessment and establish prudential parameters established by the board of directors, which include dollar amount caps and sunset dates for each program. Each bank’s board of directors must establish operating standards to determine the objectives, risks and resources required for the project. FHFA also wants each home loan bank to publicly post information about the program on its website.

In addition, FHFA also issued a 66 page report This week details the Home Loan Bank’s mission-focused activities, which include statutorily mandated affordable housing programs and community investment programs. The report found that the banks donated about $40 million to non-mandated voluntary programs in 2022.

However, FHFA said voluntary contributions from banks cannot be included in future new pilot or voluntary programs.

Congress requires each home loan bank to contribute at least 10% of its net revenues to affordable housing programs. The banks said they are voluntarily increasing their contribution to affordable housing schemes to 15% of net income.Lawmakers step up scrutiny of home loan banking system after March crisis exposes them Lending large amounts Silicon Valley Bank, Silvergate Bank, Signature Bank and First Republic Bank.

Cornelius Hurley, an adviser to the Federal Home Loan Bank Reform Alliance and a former independent director of the Boston Home Loan Bank, said banks contribute to voluntary programs to gain political influence.

“The FHLB system did not want Congress to increase the mandatory AHP contribution to 20 percent, which is why they voluntarily increased it to 15 percent,” Hurley said.

In recent months, the boards of directors of several home loan banks, including those in Chicago, Cincinnati, New York, Pittsburgh and San Francisco, have approved increasing the dividends paid to their members to about 8%. Bank of Boston raised its dividend to 8.3% this month.

FHFA has spent the past year conducting a top-to-bottom review of the Federal Home Loan Banking System, which provides low-cost loans, called advances, to 6,500 commercial banks, insurance companies, credit unions and banks fluidity. Community Development Financial Institutions.

In a report released Tuesday recommending reforms to the system, FHFA said it “may propose regulatory reforms to correct the imbalance in the relative value of the public and private benefits provided by the FHLBank system.”

The bonds issued by home loan banks are implicitly guaranteed by the U.S. government, which means they can tap the capital markets to obtain more favorable interest rates on their debt. Critics of the system include former board members and bankers who are members of the Home Loan Alliance. Reform of the Federal Home Loan Bank, claiming that private cooperatives of financial institutions receive substantial public subsidies because their debt is treated as government debt with a privileged status. Banks pay no federal, state, or local taxes, and interest on their debt is considered government debt. Exempt from state and local taxes.

The system of 11 regional banks was created by the Federal Home Loan Bank Act of 1932 to revive the housing market devastated by the Great Depression.

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