Comment Detail

Comment

Dear Director Thompson,

I am writing to you in response to the FHFA’s Request for Input on the FHLB Core Mission and Activities and Mission Achievement, and I do so as a wearer of multiple hats. I am CEO of a member Credit Union and also FHLB Des Moines Member Director from Alaska.

Changing the Mission

The first question you put before us focused on how the mission of the FHLBanks should be changed, but there is a threshold question of whether the mission should be changed by anyone other than Congress. On that question, I do not believe the FHFA has the authority to change the mission of the FHLB System. While I support the FHFA’s desire to see more progress across our nation on affordable housing, the Agency has other tools at its disposal to amplify impact that do not require overstepping legal authority.
In the RFI, the FHFA stitches together its rationale for why it has the authority to change the FHLB system mission. The RFI sites USC Section 4513(f), a section of the US Code that establishes the duties of the FHFA Director, not the FHLB system. That section in particular speaks to the requirement that before taking action, the Director should consider the differences between the FHLB system and the Enterprises. It spoke only to the Director’s duty, and in the context of ensuring that the FHLB system is appropriately differentiated from the Enterprises.
USC Section 4513(a)(1)(B)(iv) states that it is one of the principal duties of the Director to ensure that the “regulated entity carries out its statutory mission only through activities that are authorized under and consistent with this chapter and the authorizing statutes”, and the Federal Home Loan Bank Act is the authorizing statute. Therefore, the Director is required to follow the Act, and that includes the mission stated in the Act. This enumeration of duties does not grant the Agency the authority to expand or alter the Act.

If Congress had intended to redefine the FHLB System Mission coming out of the Great Recession, they surely had ample opportunity to go further than one line item under a section of code that spoke to an agency director’s obligations, and which address nothing about the obligations of the FHLB system itself.
The RFI then points to specific elements of the Federal Home Loan Bank Act that the FHFA argues reinforces the existence of this second mission. These include long term advance provisions for CFIs which are tied to specific purposes, the 10% assets requirement for membership and the existence of the AHP and CIP programs. However, Congress specifically took the effort to craft those provisions without the mission language the FHFA is now proposing. They could have done so and did not. The FHFA does not have the authority to decide that they made a mistake and correct it for them.

Measurement
On the topic of what new measurements should be put into place, I agree that any measures should be clear and objective, based on readily available information, should be reasonably comparable over time and across Banks, and should be shared publicly. I would augment “readily available” to include that they are based on information available without adding additional burden to member institutions.

Member Incentive Program
I strongly encourage the FHFA to not implement the incentive programs discussed in the RFI. They are ill advised on several fronts.

With my Board member hat on, I fear that the Agency will be putting me in a lose/lose position. On the one hand, the 12 U.S.C. 1427(j) states that as a Board Member of an FHLB I must “administer the affairs of the bank fairly and impartially and without discrimination.” On the other hand, if an incentive program is required by the FHFA, I will be required to approve one to avoid punitive regulatory action against the Bank. There would be no way to comply with the law governing my role as a Director and with this new regulation.

With my Credit Union hat on, I fear that my Credit Union will be disadvantaged by this new regulation. We are a smaller Credit Union, about $220 Million in assets. We originate mortgages and small business loans and have a thriving consumer loan portfolio. We also have niche programs targeted at affordable housing, including a manufactured home loan program, a down payment assistance program for manufactured housing in partnership with a local municipality, and a Heat Pump loan program in partnership with a local non-profit. We have always been dedicated to helping meet local housing and community development needs, and our programs reflect that. However, these are smaller, niche programs that are not easily appreciated on our quarterly call report or our balance sheet and income statement. How is the FHLB going to be able to recognize the important work we are doing on the local level? It’s unreasonable to expect them to look beyond our regular reporting to assess our commitment and therefore our appropriate tier. Even if they did, how do they score or rate our programs and compare us to others in an equitable way? I see no way to implement this fairly, and even unfair efforts will result in significant operational burden for the Bank, its member institutions, or both.

Further, many metrics or activities will favor larger organizations. Any volume based metric will clearly benefit large issuers. Participation in programs like AHP is also problematic, as the programs are so complex that many smaller institutions do not have the bandwidth to participate. While small community institutions, Banks and Credit Union’s alike, may not originate huge volumes or participate in some programs, we are in our communities serving as a valuable resource and community partner.

Conclusion

Wearing both my hats, I appreciate the opportunity to provide my input on the topic of how the Agency should regulate the FHLB system on mission, but I cannot support the Agency’s belief that is has the authority to modify the Systems mission as defined by Congress. Further, the discussion about metrics and tiers might seem to make good sense in concept, but in reality they will be highly problematic. Please take the time to ponder the real world, downstream impacts of the policy decisions before you and look for other options. The FHLB system plays a critical role in keeping community institutions lending, and it is incumbent upon us to be sure we do not cause more harm than good.

My thanks for your time and attention.

Lauren MacVay
President/CEO, True North Federal Credit Union
Member Director from Alaska, FHLBDM