Comment Detail

Comment

Background:
• After issuing its System at 100 report in November 2023, the FHFA said that it would focus first on the mission of the FHLBanks.
• As a next step, in May 2024, the FHFA issued an RFI asking for input from stakeholders on the mission of the FHLBanks, with a deadline of July 15.
• The 11 FHLBanks, in partnership with the FHLBank Council, engaged by submitting a unified response to the RFI. A summary of our response is below. From the FHLBanks’ perspective, it is Congress that has authority for setting the mission and has already outlined our mission. The RFI response from the FHLBanks reflects this perspective and reinforces the many ways that the FHLBanks have fulfilled our collective mission to provide reliable liquidity and support affordable housing and community development.
• In addition to the RFI on the FHLBanks’ mission, on June 20 the FHFA issued another RFI, asking for input on opportunities to improve how members and sponsors apply for Affordable Housing Program (AHP) funding.
• Our AHP application processes follow distinct, regulated guidelines, so we welcome this opportunity to share with the FHFA – and for others to share – opportunities to make the path easier for those who want to apply for funds to bring to their communities. We are engaging now on this RFI as well.
Mission RFI Response Summary:
Mission
• Mission is in statute: The FHLBank mission is articulated through the operating statements of the FHLBank Act which describe what FHLBanks are authorized to do, what they are required to do, what they cannot do, who may be members of a FHLBank, and how members can access the FHLBank. Together, these statements form the mission of the system as most recently captured in the Housing and Economic Recovery Act: promoting financial stability by providing a reliable, cost-effective source of liquidity to their members and supporting housing and community development efforts throughout the nation
• Congress has expanded FHLBanks’ mission when necessary: When Congress has felt the need to expand any aspect of the FHLBanks’ mission, it has not hesitated to do so – as when it granted membership eligibility to commercial banks, and when it expanded eligible collateral types for community financial institutions.
• FHFA’s role is narrow: As a safety and soundness regulator, while FHFA can certainly evaluate how the FHLBanks are performing against that mission, it does not have the authority to change it.
• FHLBanks have delivered on their mission throughout their history: The FHLBanks have been delivering on their mission for over 90 years in many ways.
o The FHLBanks provide stable, reliable liquidity to their members day in and day out through advances and letters of credit. While this funding is vital during times of economic stress, it also serves to provide members everyday balance sheet management. The nexus between the FHLBanks’ mission and the liquidity they provide has always been ensured by the mission-related collateral pledged by members.
o The mortgage loans purchased from members through the various Acquired Member Asset programs directly support housing by allowing members who originate mortgages sell loans to the FHLBanks to free up capital while maintaining their customer relationships.
o As a consistent investor in single family mortgage-backed securities, the FHLBanks provide liquidity to the MBS market and help reduce financing costs.
o Other FHLBank investments in short-term, highly rated assets can be rapidly converted to cash and lent out to member institutions. As a “financial first responder”, it is vital that the FHLBanks have a ready source of liquid funds for their members.
o The FHLBanks are proud of their Affordable Housing Program and the voluntary and pilot programs that allow them to address regional housing and community development needs in a responsive and flexible manner.
• Congress, not FHFA, has the authority to change the FHLBanks’ mission: Congress has consistently shown support for FHLBanks activity through changes expanding the system. Congress alone has the authority to change or clarify the mission of the FHLBanks and has done so over time. Congress - not FHFA - has the authority to determine when and what changes to FHLBanks are necessary.
Measurement
• All FHLBank activity is mission activity: Since the FHLBanks can only do what Congress has authorized and required them to do, then everything a FHLBank does is in fulfillment of its mission. As FHFA measures how FHLBanks fulfill their mission, they should recognize all liquidity, affordable housing and community investment activity.
• FHFA already conducts consistent assessments of FHLBank activity: FHFA annually examines the FHLBank’s compliance with the Core Mission Activities regulation. The FHLBanks strategic plans are required to include plans for maximizing activities that further the FHLBank's housing finance and community lending mission. The FHFA conducts regular Affordable Housing Program, Office of Fair Lending Oversight, Office of Minority and Women Inclusion, and Safety & Soundness Examinations that examine all aspects of the FHLBanks’ mission. FHFA published annual reports on collateral and targeted mission activities, as well as its annual report to Congress.
Member Incentives
• All members should be treated fairly: The FHLBank Act requires the FHLBanks to treat all members fairly and impartially, taking into consideration the creditworthiness of their members and the safety and soundness of the FHLBank.
• Congress has already provided for “incentives”:
o Congress has already provided “incentives” by allowing community financial institutions to pledge a broader range of collateral.
o Congress has already provided “incentives” through legislation authorizing members to obtain discounted advances through the Community Investment Cash Advance (CICA) and Community Investment Program (CIP) programs.