Comment Detail

Comment

Dear Director Thompson,

Thank you for the opportunity to comment on Federal Home Loan Bank (FHLBank) system at 100. Our credit union is located in Burlingame, CA and serves a field of membership of healthcare workers within San Mateo County and anyone who lives or works in San Mateo County, CA. We have 4,700 members and are $91 million in assets. We have been members of the FHLBank of San Francisco since 2021. Operationally, our FHLBank relationship is imperative to our ability to provide affordable financial services. Credit unions, unlike other lenders have limited liquidity sources which often carry a higher premium, making the FHLBanks uniquely important.

I will open and close with this point: any changes to the system should be thoughtfully considered in regard to their impact on our cooperative business model that credit unions operate under. Remember, credit unions are not banks, insurance companies, or other types of lenders. We have very specific restrictions because of our charter. We grow through retained earnings and are mission driven by people-helping-people.

As with all lending, liquidity is at the heart of our operation. The timing of the Federal Housing Finance Agency conducting this review as the nation is experiencing a period of rising interest rates, and increasing uncertainty in the financial services sector, only validates the importance of the FHLBank system. The events taking place as of the penning of this letter alone, justify the important role liquidity provides like the FHLB serve. Whether moments of flight to safety occur, or the consumer moves to yield chasing, borrowing demands remains a challenge.

My relationship with our FHLBank begins there, with liquidity. FHLBank provides us additional tools to meet the needs of our members. We are members for times like these where the economy is questionable, rate environments are rapidly adjusting, and consumer demand for lending has not halted. Rather, as of composition of this letter, our loan demand has grown 8.5% in year-over-year.

Having access to affordable liquidity products that can be available on very short notice allows my team the flexibility to adjust to the today’s environment while planning or the future. Whether it is to meet overnight funding obligations or termed borrowing needs, the FHLBank plays a pivotal role for Upward Credit Union. To that, as a credit union our model is inherently different from the other members of the FHLBank. In fact, our mission-driven, cooperative, not-for-profit model is geared to helping the communities and members we serve.

To that, a question for the FHFA is what level of coordination has there been between the National Credit Union Administration which regulates federal credit unions, and as the insurer for all but 130 state chartered credit unions? This is a valid point, as regulators tend to focus on large bank and community bank lenders. However, according to the FHLBank of San Francisco, there are currently 155 credit unions as members of the 330 member institutions, representing the largest proportion of FHLBank’s membership. While the number of credit unions is declining, one would hope that the FHFA would not take action or issue rules that would hinder credit union’s ability to access liquidity to better serve our members and the communities we serve.

Credit unions of all sizes are growing. Inflationary pressures, housing prices, supply chain issues are all contributing to an increase in prices. With the likelihood of a recession and increases in delinquencies and hopefully not foreclosures and repossessions, credit unions will experience losses. Losses will lead to consolidation, and the industry would bode well to keep our liquidity providers and lines of credit available.

To that, the FHFA should examine and compare costs from the remaining few Corporate Credit Unions, the Federal Reserve Discount Window, and the secondary market for brokered deposits and other options. Comparatively, the FHLBanks are more reasonably priced and offer services that meet my needs. Having the ability to access liquidity from the FHLBanks is an economical source for Upward Credit Union. Thus, allowing us to return more to our members while meeting their borrowing needs.

In following the narrative of the FHFA roundtables, a lot of discussion has emerged about mortgage originations. While my credit union does originate, we often rely on a third-party vendor (TPV). We may opt to hold the loan, which eventually we pledge to the FHLB, but we are not marked as an originator. FHFA must understand that smaller institutions typically partner with TPV to maintain scale for our members. We should not be penalized because we do not originate, especially given the compliance cost for a licensed Mortgage Loan Officer, funder, and pipeline assistance personnel.

Once again, the FHFA should tread lightly on any changes to membership eligibility, lending requirements, or asset thresholds.

Speaking of asset thresholds, while the FHFA is an agency of the government, as with all regulators that oversee the aspects of the Financial Services ecosystem, I am concerned that the business model and cooperative nature of credit unions is not fully understood. Unlike others in the financial services marketplace, credit union members must fit a defined field of membership to join (again much like the FHLBanks themselves).

Therefore, we cannot serve everyone and anyone in the general public. As mentioned, my particular field of membership serves healthcare workers within San Mateo County and anyone who lives or works in San Mateo County, CA. Because our charter restricts our ability to raise capital, we are very limited when it comes to accessing additional liquidity. Once again, without affordable liquidity, there are further pressures on retained earnings. If the objective is to make lending more accessible and affordable for working families, the FHFA should be working to grow access to the FHLBanks and not restrict it. Any restriction would likely bring about service fees, which are also under review by the Consumer Financial Protection Bureau. If the FHFA were to increase mandates, thresholds, and requirements for product use and or membership requirements, this will lead to an inverse reaction resulting in higher costs to the consumer eventually us moving to a third-party organization for certain lending products.

We serve our field of membership as our reason for existing. This is what makes us different no matter if we are $40 million or $40 billion in assets. We serve our membership, our community and therefore are always a community-based lender. I hope this is something the FHFA will note in your report.

The FHFA should also look to increase credit union participation in the FHLBanks by understanding and investigating our model further, recognizing that as community-based financial institutions our needs are different, and ensuring credit unions have a say at all FHLBanks. I know my industry currently has, three voices on the FHLBank San Francisco board of directors.

In closing, I hope future actions of the FHFA will be thoughtful, considerate, and most of all comprehensive in understanding how my FHLBank supports my credit union’s objective. The FHFA should be looking to increase access for our model and not restricting it.

Thank you,

Jason Mertz-Prickett
President & CEO
Upward Credit Union
Jmertz-prickett@upwardcu.org
650-231-1300 x121