Federal
Home
Loan
Bank
reform
is
in
the
air
in
Washington
D.C. 

The
White
House
recently
endorsed a
plan
to
double
FHLBanks’
mandatory
contributions
to
affordable
housing
programs
from
10
to
20%
of
their
net
income,
following
a
recommendation
by
the Federal
Housing
Finance
Agency.
And
the Coalition
for
Federal
Home
Loan
Bank
Reform,
a
group
that
I
chair
and
started
as
a
small
group
of
D.C.
insiders,
has
become
a
true
coalition
of
nine
national
organizations
representing
hundreds
of
thousands
of
Americans.

Despite
billions
of
dollars
in
public
support,
few
Americans
know
about
FHLBanks.
The
Federal
Home
Loan
Bank
system
is

made
up
of
11
regional
banks
that
pass
on
discounted
loans
to
their
membership
of
banks,
credit
unions,
and
insurance
companies.
As
a
government-sponsored
enterprise
(GSE),
the
FHLBank
system
is
Congressionally
chartered
to
receive
unique
subsidies,
tax
exemptions,
and
powers,
in
exchange
for
providing
the
public
benefits
of
supporting
affordable
housing
and
community
development.

The Congressional
Budget
Office
published
a
new
report,
which
for
the
first
time
in
two
decades
put
a
dollar
amount
on
the
public
subsidies
that
FHLBanks
receive,
estimating
that
in
2024
the
FHLBank
system

will
receive
$7.3
billion
dollars(!)
in
government
subsidies.

As
I
show
in Figure
1,
this
subsidy
partly
flows
from
the
FHLBanks’
tax-free
status
and
regulatory
exemptions.
But
the
bulk
of
the
subsidy
comes
from
the
way
GSE
status
confers
an
“implied
federal
guarantee”
on
FHLBank
debt:
the
perception
that
the
federal
government
will
stand
for
FHLBank
debt
if
the
system
fails.
CBO
concluded
that
GSE
status
reduced
FHLBanks
borrowing
costs
by
0.4%
and
noted
that
if
the
system
was
“private
instead
of
public”
its
credit
rating
would
fall
to
AA
or
A
instead
of
the
current
AA+
rating.
None
of
these
subsidies
require
Congressional
appropriations
but
rely
on
federal
guarantees,
including
the
high
costs
of
public
bailout,
were
the
FHLBanks
to
fail.

Under
the
current
system,
most
of
these
billions
in
public
subsidies
flow
on
as
private
profits,
rather
than
support
public
benefits.
Congress
mandates
that
FHLBanks
devote
10%
of
their
net
income
every
year
to
affordable
housing
programs,
which
support
affordable
housing
development
and
downpayment
assistance.
But
that
meant
that
in
2023, FHLBanks
only
paid
$355
million
towards
Affordable
Housing
Programs
while
paying
out
nearly
10x
that
amount,
or
$3.4
billion,
as
dividends!
Through
these
payouts,
FHLBanks
are
redistributing
a
public
subsidy
as
a
profit
to
banks
and
insurance
companies.

FHLBanks
still
believe
in
trickle-down
economics.
They
claim
that
their
discounted
loans
and
dividends
to
members
may
trickle
down
to
consumers
in
the
form
of
discounted
mortgage
rates.
However,
many
of
their
members
are
not
even
in
the
mortgage
business
anymore: a
Bloomberg
investigation found
that
42%
of
FHLBank
members
had
not
originated
a
single
mortgage
over
the
last
five
years.
It
is
unclear
how
cheap
loans
and
big
dividend
payouts
to
insurance
companies
help
Americans
buy
their
first
house
or
find
an
affordable
rental.

Even
the
technocratic,
impartial
CBO
questions
this
twisted
system
when
it
dryly
noted
in
its
report:
“Other
stakeholders
of
FHLBs,
including
the
executives
and
owners
of
banks,
might
also
realize
benefits.”
That
is,
parts
of
today’s
public
subsidy
simply
go
towards
supporting seven-figure
executive
pay
at
the
11
FHLBanks.

Whether
it
is
coming
from
the
White
House,
the
FHFA,
the
Congressional
Budget
Office,
or
the
Coalition,
the
status
quo
at
FHLBanks
is
unacceptable.
Wasteful
government
spending,
especially
amidst
a
national
housing
crisis
where
both
parties
are
seeking
solutions
to
our
housing
supply
shortage,
is
a
bipartisan
issue.

Congress
should
demand
greater
accountability
on
how
these
public
subsidies
support
public
benefits.
They
can
start
by
passing
legislation
that
greatly
improves
the
Affordable
Housing
Program
contributions
that
FHLBanks
make,
from
the
current
meager
10%
to at
least
30% –
a
set-aside
that
FHLBanks
have
shown
they
can sustainably
make
when
they
paid
REFCORP
contributions
from
1989
to
2011.

I
think
it
is
time
that
the
public
learned
about
FHLBanks
and
how
they
are
skirting
their
responsibility
to
help
support
our
nation’s
housing
troubles.
There
is
so
much
untapped
potential
here:
imagine
having
the
full
leverage
of
$7.3
billion
in
public
subsidies
to
truly
support
imaginative
housing
solutions.

Sharon
Cornelissen is
the
chair
of
the Coalition
for
Federal
Home
Loan
Bank
Reform and
Director
of
Housing
at
the
Consumer
Federation
of
America,
a
national
pro-consumer
advocacy
and
research
non-profit.

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