Sen. Warren urges FHFA to reform Federal Home Loan Bank system

U.S. Sen. Elizabeth Warren (D-MA) is encouraging the Federal Housing Finance Agency (FHFA) to reform the Federal Home Loan Bank (FHLB) System.

© Shutterstock

In as letter to FHFA leadership, Warren urged the agency to move forward with two proposed rules on the FHLBs’ mission and membership.

FHLBs were created to provide liquidity to their members to support housing and community development. However, Warren said it has strayed from that. A recent Congressional Budget Office (CBO) found that the FHLBs will receive $7.3 billion in public subsidies this year alone.

“While these subsidies were meant to address our nation’s housing needs, they mostly supported bank executives and shareholders instead,” Warren wrote. “Last year, the FHLBs paid $3.4 billion to their members in dividends and only $395 million to Affordable Housing Programs (AHP)—a staggering 8.5 to 1 ratio.”

FHFA is responsible for ensuring that FHLBs are accountable and operating in a safe and sound manner. Last November, the agency released a report documenting areas of improvement for the FHLB system as well as recommendations for FHFA and Congressional action.

“Congress should pass legislation to reform the FHLBs. For instance, Congress can increase the FHLBs’ mandatory AHP contributions, address exorbitant executive compensation practices, and redefine what entities are eligible to be FHLB members,” Warren wrote. “But as the primary regulator of the FHLBs, FHFA has the authority to act now.”

Warren called on FHFA to take two specific actions. One, she said the FHFA should issue a rule clarifying the mission of the FHLB as “(i) providing stable and reliable liquidity to their members, and (ii) supporting housing and community development,” not simply to prop up failing banks.

Two, she said the FHFA should use its regulatory authority to change the membership requirements for the FHLBs, ending the current state of affairs where, in recent years, nearly half of FHLB members have not originated a single mortgage.

“With the ever-growing housing crisis, Congress and federal regulators must work together to improve our housing finance system,” Warren added.

She concluded by asking FHFA to move forward with proposed rulemakings.