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Senators Ask FHFA to Revisit FHLBank Membership Requirements

Federal Home Loan Banks MembershipTwenty-seven senators have signed a letter addressed to Federal Housing Finance Agency (FHFA) Director Mel Watt asking him to reconsider the stricter membership requirements for the Federal Home Loan Banks the Agency proposed in September.

The changes to membership requirements outlined by Watt in a speech at the FHLBank Director's Conference on September 2 require members to hold 1 percent of their assets in home mortgage loans (HML) on an ongoing basis, whereas the previous rule requires members to demonstrate this only at the time of their application and not at any time afterward. Another proposed change requires members to adhere to the 10 percent residential mortgage loan (RML) requirement on an ongoing basis as opposed to just at the time of application.

The senators' letter, dated December 15 and co-authored by Senators Joe Manchin (D-West Virginia) and Mark Kirk (R-Illinois), states that "(t)he proposed rule affects long-standing membership rules for the Federal Home Loan Bank system and will negatively affect new and current members in the system." Twenty-five other senators signed the letter.

"Under the current regulations, if a member does not have assets that meet the system’s statutory and regulatory requirements for eligible collateral, it cannot borrow," Manchin and Kirk wrote in the letter. "Under the proposed regulation, however, even if a member has assets that meet this test, a member could be expelled from membership if the member cannot meet the new – and unprecedented – mortgage asset tests for continued membership. The consequences are harsh and the terms of the proposed rule are inconsistent with the explicit terms of the FHLBank Act."

The letter states that in the 80 years since it was created, the FHLBank system has been a key partner in the success of smaller institutions, and the authors pointed out that Watt has stated the importance of these institutions in housing finance. The authors of the letter also pointed out the value of the cooperative FHLBank model was demonstrated by the stability the FHLBanks provided during the 2008 financial crisis.

"Given their success and importance, we are concerned the proposed rule could jeopardize the ability of FHLBanks to provide liquidity to community financial institutions when they need it most," the letter said.

Manchin and Kirk also asked Watt in the letter to "consult further with other agencies before finalizing any rule that affects these much needed financial institutions," since the FHLBank system is currently operating "safely and successfully."

"In light of these concerns, we urge you to reconsider this proposal and consult with Congress, which is where these important policy decisions should be made," the letter said.

The senators who signed the letter were (alphabetically): Ayotte (R-New Hampshire), Baldwin (D-Wisconsin), Blunt (R-Missouri), Cardin (D-Maryland), Chambliss (R-Georgia), Coburn (R-Oklahoma), Cochran (R-Mississippi), Coats (R-Indiana), Donnelly (D-Indiana), Fischer (R-Nebraska), Hirono (D-Hawaii), Hoeven (R-North Dakota), Inhofe (R-Oklahoma), Isakson (R-Georgia), Ron Johnson (R-Wisconsin), Johanns (R-Nebraska), King (I-Maine), Kirk (R-Illinois), Manchin (D-West Virginia), Moran (R-Kansas), Portman (R-Ohio), Roberts (R-Kanas), Rubio (R-Florida), Scott (R-South Carolina), Tester (D-Montana), Thune (R-South Dakota), and Wicker (R-Mississippi).

Last month, a bipartisan group of 68 house members signed a letter to Watt, authored by Spencer Bachus (R-Alabama) and David Scott (D-Georgia), expressing the same sentiments regarding the proposed FHLBank membership rule. The National Association of Federal Credit Unions (NAFCU) voiced similar concerns in November.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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