In a recent speech at the 2014 Federal Home Loan Banks (FHLBanks) Directors Conference, director of the Federal Housing Finance Agency (FHFA) Mel Watt addressed issues related to the 12 FHLBanks. Watt spoke on a variety of topics, including franchise value, FHLBanks' core mission activities, membership composition, the Affordable Housing Program (AHP), and the importance of placing a higher priority on women and minority inclusion.
The conference was the first audience Watt spoke to after being sworn in as director.
Watt briefly commented that FHLBanks income trends have been largely positive—every FHLBank has recorded a positive net income for the past ten quarters. Advanced volume has increased, and capital is stronger now than in the past, according to the FHFA director.
Watt spoke on franchise value, which he described not as an increase in stock price, but rather, the ability for FHLBanks to provide access to funding as well as support for affordable housing and community development. Watt believes that the two most important factors in considering FHLBank franchise value are advance demand and membership.
"What the FHFA has observed is that the Banks that have benefited from upward advance demand have some common characteristics: core mission focus, low-risk investments, a stable dividend, and the ability to easily repurchase or redeem excess stock," Watt said.
Watt continued, charging the group with continuing an on-going discussion regarding the FHFA and the FHLBanks core mission activities. Watt cited a desire to keep the banks safe and less likely to encounter financial difficulties, even going so far as to say, "It is a source of historic pride that the FHLBanks have never experienced a credit loss on advances."
Watt then transitioned to membership composition, citing concerns that an increase of advances to insurance companies gives him pause, as lending to insurance companies creates different types of risk. In the year 2000, a mere one percent of advances were to insurance companies, which have risen to 14 percent in 2013.
The Affordable Housing Program was next. Watt spoke of the program's successful 25 year track record: "From 1990 through 2013, the FHLBanks have contributed almost $5 billion in grants to fund affordable housing." Watt encouraged future input from the group on any features of the AHP that should be retained or rejected when the program's rule-making process is examined in 2015.
Finally, Watt reiterated the requirements for each FHLBank to have an Office of Minority and Women Inclusion (OMWI). He announced that he will be naming a permanent OMWI director at FHFA to ensure each FHLBANK is compliant "with both the letter and the spirit of the law."