FHFA head notes strong interest in FHLB membership plan in testimony

January 27, 2015

WASHINGTON (1/28/15)--Rep. Frank Lucas (R-Okla.) expressed reservations about proposed changes in the Federal Home Loan Bank (FHLB) membership requirements during a House Financial Services Committee hearing Tuesday.

The hearing, which featured testimony from Federal Housing Finance Agency (FHFA) Director Mel Watt, also delved into discussions on the agency's proposed low down-payment loans.

The FHLB proposal would set forth several ongoing requirements for FHLB members that are more burdensome than current requirements. The Credit Union National Association is adamantly opposed to the proposal, citing the additional compliance burden the new requirements would create.

Watt said the agency received more than 1,300 comments on the proposal and is in the process of reviewing the comments. He pledged to consider those comments, as well as those of the committee.

Lucas said the committee would be "very sensitive" about doing anything to alter the current FHLB model, which he said is working well. He specifically mentioned how the proposal could adversely affect community financial institutions.

According to Watt, the proposal is to ensure the FLHB system is in compliance with statute, a claim that was disputed by Lucas, who said he does not believe the proposal is in line with anything intended by Congress.

"Every time that Congress has amended the Federal Home Loan Bank Act with respect to membership eligibility, the intent has been to make the banks more accessible--not less accessible--to lenders and other members," said Ryan Donovan, CUNA's chief advocacy officer. "The FHFA proposal does just the opposite."

Members of the committee also questioned Watt about the FHFA's proposed 3% down-payment loans. Committee Chair Rep. Jeb Hensarling (R-Texas) said he is concerned that loans with a loan-to-value (LTV) ratio of higher than 95% (the FHFA's 3% down payment option would have a 97% LTV) have seen a rise in default rates.

Watt responded by saying the loans don't only require a 3% down payment, rather, as part of Fannie Mae (MyCommunityMortgage) and Freddie Mac's (Home Possible Advantage) low down-payment products, potential homebuyers must complete borrower education programs and meet other requirements that lessen the overall risk to the lenders.