Let’s Make Home Loan Banks about Homes Again
Historical Context
The FHLBank System is a system of 11 regional banks, which serve a membership of around 6,400 banks, credit unions, insurance companies, and community development financial institutions (CDFIs). Congress founded this institution during the greatest housing crisis of the last century, the 1930s Great Depression, to help encourage mortgage lending and homeownership. Due to their status as a government-sponsored enterprise (GSE), the FHLBanks can borrow cheaply at rates close to the U.S. Treasury and they pass the vast majority of this subsidy on to their members in the form of generous dividends and low-cost loans (called “advances”). When the system was created, member institutions had to pledge mortgage loans as collateral for the advances, creating a direct tie to affordable homeownership. Over time, this requirement has been loosened such that even highly liquid mortgage-backed securities (MBS) may be used as collateral. Many of the FHbank members also no longer originate mortgages. These changes have made the connection between advances and housing much more tenuous. For example, a recent report by the U.S. Government Accountability Office (GAO) found that every 1 percent increase in advances to small and medium banks was only associated with 0.003 percent in additional residential real estate lending, while they found no relationship between advance borrowing and home lending for large banks.
Our Advocacy
Calling on Congress and the FHFA to Reform the FHLBs
We champion legislative and regulatory reform focusing on: increasing direct contributions to affordable housing, promoting empirical transparency across all eleven regional district banks, realigning liquidity oversight with public policy, and enhancing accountability to community development needs.
