WASHINGTON (9/5/14)--A recent Federal Housing Finance Agency plan to tighten membership eligibility rules for the Federal Home Loan Bank system lacks parity for credit unions, compared with community banks, and the Credit Union National Association is working aggressively with FHFA and the FHLBs to improve the proposal for credit unions.
If approved, the new rule would require all credit unions--but, because of a statutory limitation in the Federal Home Loan Bank Act, only certain banks--to hold 10% of assets in residential mortgage loans on an ongoing basis. While financial institutions currently must met the 10%-of-assets threshold to become FHLB members, there is no requirement at this time that the member maintain it to remain a member.
Under the proposal, an FHLB member who is out of compliance with the 10% test for two consecutive years would have membership terminated.
However, community banks are exempt. Under current rules and continued under the plan proposed Sept. 3, "community financial institutions" are defined as Federal Deposit Insurance Corp.-insured banks with less than $1 billion in average total assets (adjusted annually for inflation) over the preceding three years.
They do not have to meet the threshold that is required of National Credit Union Administration-insured credit unions and large banks. (Privately insured credit unions are not eligible for FHLB membership, and CUNA supports current legislation that would remedy what is considered by proponents to be an oversight in the original statute.)
"The FHLBs are a very important source of liquidity for credit unions in the mortgage marketplace, and it is important all credit unions and their member-owners have access to these resources. CUNA is working with representatives of the FHFA and three of the Banks to assure access," said CUNA Deputy General Counsel Mary Dunn Thursday, as CUNA continues to investigate the effect of the FHFA proposal on credit unions. "We are also troubled by the lack of parity between credit unions and community banks under existing law, and will be asking Congress for relief on this point."
The FHFA said its membership proposal stems from a recent review that prompted concern that current membership eligibility requirements, as applied, could permit the FHLBanks to admit as a member an institution that has "such a tenuous connection to home mortgage lending that it should not be allowed to access the benefits of Bank membership."