MBA Supports Federal Home Loan Bank Membership Expansion
The Federal Housing Finance Agency published a request for contribution in February, asking industry opinion for expansion of Federal Home Loan Bank membership. The FHFA decided to take a closer look at the guidelines after evidence emerged regarding “driving arrangements”, in which non-members build relationships with members in order to circumvent membership guidelines and gain access. to cash and low-cost loans provided by federal mortgage banks. .
Membership is currently only legally available to federally insured banks and credit unions, federally uninsured credit unions, and non-depository community development financial institutions.
In its response to the FHFA on membership expansion, the Mortgage Bankers Association stated that it supports expanding eligibility to the FHLB as long as it is done responsibly. An expansion is expected to “better reflect the diverse providers of single-family and multi-family housing finance across the country,” according to the MBA’s letter to Director of the FHFA, Mark Calabria.
Opening up eligibility to banks and non-banks would lead to more competition in the market and better conditions for consumers, argued the MBA. Lenders in the network are leveraging on-demand liquidity through advances – low-cost loans – from its regional FHLB. This helps the FHLB to accomplish its mission of “providing reliable liquidity to its member institutions to support housing finance and community investment,” writes the MBA.
The MBA believes that the mission would be strengthened by more membership and that a larger system comes with a wider selection of product offerings and, therefore, income.
FHLB membership plans are often a controversial topic in the industry, having provoked both generalized opposition and full polarization. Last year, the Pennsylvania Bankers Association called for non banking to be excluded from the group by highlighting the practice of buying “clandestine memberships”.
For this iteration, the MBA has taken a favorable stance, but it also advises the FHFA to put in place a comprehensive eligibility framework and to monitor the counterparties to ensure that members align with the mission of the FHLB. . With clear parameters, potential members should meet the requirements and not squeeze through loopholes or proxy arrangements.
This “well-designed framework would strengthen the broader housing finance system by increasing the supply of reliable and longer-term liquidity to the institutions that play a vital role in this system,” the letter said.