On October 12, the House Financial Services Subcommittee on Oversight and Investigations held a hearing, “Oversight of the Federal Home Loan Bank System.”
Subcommittee Chair Randy Neugebauer (R-TX) said the purpose of the hearing was to understand the core mission of the Federal Home Loan Banks (FHLBs), evaluate whether the FHLBs have deviated from its mission, and assess whether the bank system is operating in an optimum way. Mr. Neugebauer said it is important to exercise oversight of the FHLBs to ensure that that they do not follow the path of the other housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, which he said strayed from their core mission.
Each of the witnesses spoke about the overall impact of the FHLBs in mortgage financing and suggested that modifications to the FHLB system would negatively impact the banks’ successful operations. Witnesses also spoke favorably about the FHLB’s Affordable Housing Program (AHP), emphasizing that the program is part of the bank’s core mission.
Anthony Costa of the American Bankers Association highlighted two important programs the FHLB provides: AHP and the Community Investment Program. He said that AHP is one of the largest private funding sources in the U.S. for affordable housing development and stressed that the AHP provides funds for housing that might otherwise not be financed, including units for seniors, people with disabilities and homeless families.
According to Mr. Costa, since 1991, AHP has created 726,000 affordable housing units with 457,000 of targeted to very low income households. The program also has created 200,000 jobs and provided infrastructure in the communities where projects are financed, especially important in rural areas where financing is less available.
Lee Gibson of the Federal Home Loan Bank of Dallas also said that a hallmark of the FHLB is its commitment to affordable housing and community development, which is both “proven and strong.” He reported that over two million families have been helped by $61 billion in long term financing and $4.5 billion in direct grants that the FHLBs have provided for affordable housing. He said that part of the FHLBs success in funding affordable housing is due to the regional structure of the twelve banks that can be responsive to the individual needs of communities in their area
The Honorable Bruce Morrison, former Chairman of the Federal Housing Finance Board, which was the FHLB regulator, and former Congressman (D-CT), testified that the “success of the banks is reflected in the Affordable Housing Program.” Mr. Morrison said that while it is a very small program compared to the FHLB system, the money is well used by investing in low income housing development and down payments for low and moderate income households.
Mr. Morrison said that when AHP was first established by Congress, the FHLBs were forced to participate. Now they view AHP as a valuable program that none of the banks would give up. While FHLBs are required to contribute a minimum of 10% of earnings to AHP, Mr. Morrison would direct more to the program.
Until this year, the FHLBs also were required to direct an additional 20% of earnings to pay off RefCorp bonds, a holdover from the Savings and Loan bailout of 1989. Mr. Morrison suggested that FHLBs should be required to apply these funds to AHP or other economic development activities to maintain a 30% contribution of earnings to public use. The bond obligation was completed in July 2011.
The NHTF campaign has suggested the 20% of FHLB earnings that have been going to the RefCorps bonds as a possible funding source for the NHTF. This could provide up to $500 million a year. For the moment, the Federal Housing Finance Agency (FHFA), the current GSE regulator, is requiring the FHLBs to use the funds to increase their retained earnings and capital.
For more information on the FHLB and AHP, see the article on the FHLB in the 2011 Advocates’ Guide to Housing and Community Development Policy, which can be found at www.nlihc.org
To read the FHFA announcement on RefCorp go to http://www.fhfa.gov/webfiles/21861/Refcorp080511.pdf.