On November 20, the Terwilliger Center hosted Federal Housing Finance Agency (FHFA) Director Sandra L. Thompson for a fireside chat with Center Executive Director Dennis Shea. The FHFA is responsible for ensuring the soundness and liquidity of the housing finance system through its oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank (FHLB) system.
Established by Congress in response to the Great Depression and currently consisting of 11 regional banks, the FHLB system provides low-cost loans to its 6,800 member institutions to facilitate mortgage lending and offers financing for affordable housing and community development projects. Last year, FHFA began a comprehensive review of the FHLB system to evaluate its performance over the past 90 years and to consider the role it should play going forward. Director Thompson discussed the agency’s findings from its report, FHLBanks at 100: Focusing on the Future, and identified areas of future work. A transcript of the event is available here.
Check out some of the highlights:
FHFA’s motivation for the FHLB review:
Director Thompson shed light on FHFA’s rationale for undertaking the first comprehensive review of the Home Loan Bank System in decades. FHFA took a holistic view of the system and analyzed its dual mission of providing stable and reliable liquidity to members and supporting affordable housing and community development. FHFA also evaluated its own supervision and regulatory processes to see whether there were things that could be improved upon internally.
Meeting the mission to remain a stable and reliable source of liquidity:
The report addresses the bank failures of early 2023, when some FHLBanks were lenders of last resort for troubled member banks that didn’t have agreements in place to borrow from the Federal Reserve’s discount window to manage their short-term liquidity needs. Director Thompson emphasized having established processes in place to facilitate coordination among the Home Loan Banks, the Federal Reserve regional banks, primary federal regulators, and FHFA to ensure stability during market challenges.
Significantly increasing the FHLBanks’ engagement in housing and community development:
Director Thompson discussed strategies that FHLBanks could take to prioritize meeting their affordable housing and community development directives. She urged the banks to think creatively and consider expanding upon existing voluntary and/or pilot programs, further engaging community development financial institutions, and increasing small mortgage lending for small multifamily properties.
The report includes a recommendation to double the FHLBanks’ required minimum contribution to their Affordable Housing Programs (AHP) (currently set at 10% of net earnings), an update that would require congressional approval.
Ensuring FHLBank boards can address emerging risks:
Director Thompson highlighted the FHLBank board governance requirements, which may warrant the inclusion of board members with specialized expertise given new risks to the financial and banking sectors.
Addressing insurance and affordability challenges in the face of natural disasters:
Director Thompson concluded the fireside chat by highlighting an issue outside the scope of the report but that has become an important topic in the housing industry: escalating property insurance costs due to natural disasters. FHFA recently hosted a convening of experts to shed light on the impact that climate-related events have had on housing finance and affordability. The agency plans to host a subsequent convening in 2024.
This fireside chat is part of a Housing Leaders Speaker Series hosted by the J. Ronald Terwilliger Center for Housing Policy at BPC. To view conversations with other housing leaders from the government, nonprofit and private sectors, visit the Center’s Housing Leaders Speaker Series page.
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