In Case You Missed It, Senator Cortez Masto’s work to reform the Federal Home Loan Bank (FHLBanks) system picked up steam this week, with the Federal Housing Finance Agency (FHFA) releasing a new report calling on Congress to pass the Senator’s legislation and “ratchet up federal oversight,” according to Bloomberg.
By: Austin Weinstein
US officials will seek to limit access to Federal Home Loan Banks after failing lenders turned to the $1.3 trillion system in desperate bids to survive March’s banking crisis.
The Federal Housing Finance Agency will try to push FHLBs back to their roots in housing finance, and away from serving as lenders of last resort to troubled banks, according to a report published Tuesday. The plans would ratchet up federal oversight, and seek to direct banks toward the Federal Reserve’s discount window in times of extreme stress.
Some changes would require congressional action. Officials will ask lawmakers to help curtail pay for some FHLB executives and to at least double the amount of profit that the FHLB system must spend on affordable housing.
The report criticized the FHLBs’ practice of setting salaries by comparing them with similar positions at similarly sized commercial banks. Unlike those lenders, “the FHLBanks have lower risk profiles than commercial banks” and aren’t comparable in many regards, the authors wrote.
The FHLBs were set up in the Great Depression to boost mortgage lending, but have since morphed into a backstop for banks and credit unions. At the same time, their importance in housing finance has declined as nonbank mortgage firms grew to dominate home lending.
Senator Catherine Cortez Masto, a Nevada Democrat who had asked for the review of the system, said in a statement that she was “glad the administration is prioritizing my recommendations to reform the Federal Home Loan Bank system to ensure they’re helping us lower housing costs for Nevadans and for families across the country.” Her office is working on a bill that would implement some of FHFA’s plans.