Comment Detail

Comment

April 15, 2016

Alfred M. Pollard, General Counsel
Federal Housing Finance Agency, Eighth Floor
400 Seventh Street SW
Washington, D.C. 20219
Via Email & Federal Express

Attn: Comments/RIN 2590-AA69

Re: Notice of Proposed Rulemaking and Request for Comments: Acquired Member Assets

Dear Mr. Pollard:

The Federal Home Loan Bank of San Francisco (“Bank”) respectfully submits to the Federal Housing Finance Agency (“Finance Agency”) for consideration the following comments regarding the notice of proposed rulemaking (“Proposed Rule”) on acquired member assets (“AMA”) published on December 17, 2015. The Bank offers these comments in addition to those in which the Bank joined with other Federal Home Loan Banks (the “FHLBanks”).

The Bank believes that the Proposed Rule’s provision prohibiting FHLBanks from purchasing loans that exceed the conforming loan limits established pursuant to 12 U.S.C. § 1717(b)(2) should be removed in the final rule. This provision restricts the Bank’s ability to comprehensively fulfill its housing finance mission. As noted by the Finance Agency in the preamble to the Proposed Rule, AMA is functionally the equivalent to the business of making advances. It allows members to use eligible assets to access liquidity for further mission-related lending. Continuing to impose conforming loan limits on all AMA significantly restricts the ability of the Bank’s members to use eligible assets to access liquidity for further mission-related lending. Many of the Bank’s members pledge as collateral for advances single-family loans that exceed the conforming loan limit established for high-cost areas. Based on the FHLBanks’ mission, as summarized in the Proposed Rule, the Finance Agency should allow members to sell those loans to the Bank. The Bank believes the final rule should be revised to address the significant regional differences in real estate markets by removing blanket loan limits.

The Finance Agency and its predecessor, the Federal Housing Finance Board, have both stated that application of the conforming loan limit to AMA is intended to prohibit purchase of jumbo loans and to create a level playing field with Fannie Mae and Freddie Mac (“Enterprises”). The Housing and Economic Recovery Act of 2008 (“HERA”) requires the Finance Agency to take into consideration certain differences among the FHLBanks and the Enterprises when promulgating regulations, including the cooperative structure of the FHLBanks and their mission of providing liquidity to members. In promulgating a final AMA rule, the Bank believes the Finance Agency should give significant weight to the FHLBanks’ mission, as articulated in the preamble to the Proposed Rule, by fully enabling members to use all eligible assets, including loans that exceed the conforming limits, to access liquidity for further mission-related lending. HERA does not require that the Finance Agency establish a level playing field between the FHLBanks and the Enterprises, and instead requires the Finance Agency to consider the specific mission of FHLBanks and their cooperative structure when promulgating regulations. Unlike the Enterprises, a mission of the FHLBanks is to provide members of the cooperative with financial products and services that assist and enhance the members’ financing of housing for consumers without limiting this mission to certain income levels or to geographic areas that are not high-cost. Because of the real estate costs in portions of the Bank’s district, applying even the high-cost area loan limit to AMA significantly limits the ability of some of the Bank’s members to access liquidity through the Bank. Applying the conforming loan limits to the FHLBanks restricts the Bank’s ability to respond to its members’ needs. The Bank does not believe that the objective of establishing a level playing field with the Enterprises should outweigh the Bank’s ability to comprehensively fulfill its housing finance mission and to serve all members of the cooperative.

Based on information obtained from Fannie Mae, Freddie Mac, and Ginnie Mae, it has been reported that California accounted for almost 60 percent of conforming-jumbo production in 2015. For some of the Bank’s members, a large percentage of their single-family loan portfolio exceeds the conforming loan limits. An analysis of 2014 HMDA data demonstrated that 51% (totaling $20.6 billion) of FHLBank San Francisco members’ mortgage originations were above the applicable conforming loan limit. In addition, the origination of mortgage loans with balances above the conforming loan limits was not limited to single member segments. Member segments such as credit unions and designated community financial institutions (CFIs) had significant percentages of their mortgage originations in loans with balances above the conforming loan limits. The prevalence of mortgage originations with balances above the conforming loan limits is further illustrated by the single family mortgage loan collateral pledged by members to the Bank to support their credit activity. As of March 31, 2016, 67% (totaling almost $90 billion) of all single-family mortgage loans pledged to the Bank by its members had balances that exceeded the $625,500 high-cost area limit. By including a blanket prohibition on non-conforming loans in the final rule, the Finance Agency will be preventing the Bank from meeting the needs of these members and therefore preventing the Bank from fulfilling its mission.

Particularly in high-cost areas, members need to be able to originate a mix of loan sizes in order to be full-service institutions that can attract and provide services to a full range of customers. Blanket application of the conforming loan limits to AMA products can constrain liquidity for these members, which can have adverse impacts even on prospective borrowers seeking conforming loans. That is, the member may be led to exit the mortgage origination business, especially under certain market conditions.

For the reasons set forth above, the Bank believes the final rule should not include proposed Section 1268.3(a)(1). The Bank recognizes that, even if the restriction on purchasing loans that exceed the conforming limit is not included in the final rule, before purchasing such loans, the Bank would be required to demonstrate to the Finance Agency that it can manage new risks that might be presented by purchasing these loans. The Finance Agency thereby has the ability to ensure that an FHLBank electing to purchase jumbo loans does so safely and soundly and consistent with its mission. The Bank believes that the Finance Agency should give individual FHLBanks the opportunity to demonstrate their ability to manage risks associated with jumbo loans rather than continuing the blanket prohibition on loans that exceed the conforming limits. We believe the final rule should provide sufficient flexibility to accommodate the needs of FHLBank members that originate loans in high-cost markets. The final rule should address the substantial regional differences in home real estate markets so that members of all FHLBanks can fully benefit from FHLBank membership in general and AMA products in particular. The final rule should recognize differences between the Enterprises and the FHLBanks, including the mission and cooperative structure of the FHLBanks. The final rule should more closely parallel advances authority by not excluding from eligible AMA loans that exceed the limits established by 12 U.S.C. § 1717(b)(2).

Thank you for the opportunity to comment and for considering the Bank’s views.

Sincerely,

Dean Schultz
President and Chief Executive Officer