MBA Wants More Time To Study FHFA’s Proposal On FHLB Membership Rules

The Mortgage Bankers Association (MBA) has asked the Federal Housing Finance Agency (FHFA) to extend the comment period for a controversial proposal that aims to change the membership criteria for the Federal Home Loan Bank (FHLB) system, which could result in real estate investment trusts (REITs) being barred from membership.

The FHFA originally set the deadline for comments for Nov. 12; however, the MBA wants an additional 60 days so that it can form a working group that will analyze the proposal in greater detail and develop a response.

The FHFA says its goal in changing the rules for membership in the FHLBs is to ensure that only eligible entities have access to FHLB advances and membership benefits and, further, that those entities maintain their commitment to housing finance. However, the proposal has raised concerns among industry stakeholders including the MBA, which is worried that it undermines the mission of the FHLB system and could weaken the housing market as a whole.

Among the set of changes, the FHFA is proposing to establish a new quantitative test requiring all FHLB members to hold 1% of their assets in home mortgage loans (HML) on an ongoing basis. Currently, applicants for membership need only demonstrate a nominal amount of HML on their balance sheet at the time of their application.

In addition, the FHFA proposes to require certain members that are subject to the 10% residential mortgage loans (RML) requirement to adhere to this rule on an ongoing basis. Currently, these members are subject to the 10% RML requirement only when they initially apply for membership.

The biggest proposed change, however, is redefining the term ‘insurance company’ to mean a company that underwrites insurance for nonaffiliated persons as its primary business. This would allow traditional insurance companies to continue to do business with the FHLBs, but would effectively exclude captive insurers from membership. Further, it would prevent entities that are not eligible for membership from gaining access to FHLB advances through a captive insurer.

Captive insurers that are already members would be phased-out over five years.

Many industry players worry that the proposed rules would, in effect, shut out REITs from applying for and maintaining membership in the FHLBs, as they commonly use captive insurance companies to gain access to low-cost funding through the FHLB system.

The agency also seeks to clarify the standards by which an insurance company's ‘principal place of business’ is to be identified in determining the appropriate bank district for membership.

In a recent letter to the FHFA, David Stevens, president and CEO of the MBA, explains that the regular 90-day comment period isn't enough time for industry stakeholders to analyze the rule changes and come up with alternatives.

‘The [FHLB] system plays a critical role in providing liquidity to the housing finance system, and the proposal raises significant business, legal and policy issues that must be reviewed carefully,’ Stevens wrote in his letter to the FHFA.


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