Banking trade group ‘strongly’ opposes non-bank membership of FHLB system

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An influential banking trade group argued this week that the Federal Housing Finance Administration (FHFA) should not allow non-bank lenders and real estate investment trusts to become members of the $1 trillion Federal mortgage bank system.

In a statement released on Tuesday, Rebecca Romero Rainey, president of the Independent Community Bankers of Americasaid FHLBs must “remain a strong, stable and reliable source of funding for community banks, including many agricultural lenders”.

The FHFA is conducting a comprehensive review of the 90-year-old FHLB system — currently made up of 11 regional FHL banks and about 6,800 member institutions — starting in the fall. FHL banks distribute money from global bond markets to members that include thousands of commercial lenders, savings, credit unions and insurers across the United States. Member institutions are able to borrow money cheaply and can pass savings on to members.

The ICBA said it “strongly” opposes any effort to “undermine” the regional and cooperative structure of the system, allow non-custodial banks access to FHLB programs or services, or consolidate the system without the “grassroots leadership” of its member-owners.

The FHFA, which regulates the FHLB system as well as Fannie Mae and Freddie Mac, said he was particularly interested in receiving feedback in six key areas: the overall mission and purpose of FHLBanks in a changing market; Organization, efficiency and operational effectiveness of FHLBank; the role of FHLBanks in promoting affordable, sustainable, equitable and resilient housing and community investments; Respond to the unique needs of rural and financially vulnerable communities; Member products, services and warranty requirements; and Eligibility and Membership Requirements.

While the ICBA and the American Banking Association have spoken out against non-banks’ access to the FHLB system, other influential business groups have sought a different outcome, arguing that the FHLB system is archaic, channels government subsidies primarily to big banks, and does not serve the market housing optimally.

The Mortgage Bankers Association notably pushed for the inclusion of non-banks and real estate investment trusts. In a letter to FHFA Director Mark Calabria in 2020, the trade group said an expansion should “better reflect the diverse providers of single-family and multi-family housing finance across the country.”

Opening membership to non-banks and real estate investment trusts would require legislation and would likely take years.

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