WASHINGTON (12/17/14)--Twenty-nine senators have written to Federal Housing Finance Agency (FHFA) Director Mel Watt, citing concerns with the agency's Federal Home Loan Bank (FHLB) proposed membership rule.
The proposal, first announced in September, would require financial institutions to meet a set of requirements to apply for FHLB membership, as well as to retain it.
The rule would require certain financial institutions, including all credit unions, to adhere to the requirement that FHLB members have 10% of assets in residential mortgage loans at all times. Currently members are only subject to this requirement when they apply to the program.
The senators expressed concerns that, while current regulations would prevent a financial institution from borrowing if the 10% requirement is not met, the proposal would result in their expulsion from the program.
"Under the proposed regulations, 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 test for continued membership," the letter reads. "The consequences are harsh and the terms of the proposed rule are inconsistent with the express terms of the FHLBank Act."
Another part of the FHFA's proposal would define "insurance company" to mean a company's primary business is underwriting insurance for nonaffiliated insurance. This would exclude captive insurers from FHLB membership and prevent those not eligible for the FHLB program from gaining access to FHLB advances.
The senators say this part of the proposal "may have unintended--and negative--consequences on the FHLB system, which is currently operating safely and successfully."
The senators encourage the FHFA to consult further with other agencies before finalizing the rule and urge the agency to "reconsider this proposal and consult with Congress, which is where these important policy decisions should be made."
The Credit Union National Association believes the proposal could create "significant barriers" to credit union membership in the FHLB program and is working with the FHFA and FHLBanks to improve the proposal.
The senators' letter comes a month after 68 representatives expressed similar concerns in a letter to Watt. In that letter, the legislators echoed their colleagues in the Senate, saying that FHLB membership decisions should be left to Congress.