FHLB membership proposal 'adamantly opposed' by CUNA

January 12, 2015

WASHINGTON (1/13/15)--The Credit Union National Association has urged the withdrawal of the Federal Housing Finance Agency's (FHFA) proposal dealing with membership to the Federal Home Loan Bank (FHLB) program.

In a comment letter filed Monday, CUNA says it is "adamantly opposed" to the proposal, which the trade group says would ratchet up the FHLB program's membership requirements and make it more difficult for credit unions to belong.

CUNA maintains the FHLB system can serve as an important source for credit union liquidity.

"We do not believe the proposed changes are warranted or required to meet statutory requirements. Moreover, we do not believe the agency has provided sufficient analysis as to why the proposed membership requirements are needed," reads the letter, signed by CUNA Deputy General Counsel Mary Dunn. "Most important, we are concerned the proposal would require FHLB-member credit unions to make business decisions that may not be in their members' overall best interests."

Specifically, the proposal would require all FHLB member financial institutions to hold 1% of assets in home mortgage loans on an ongoing basis, and suggests that this requirement might be raised as high as 5% in the future. Currently, FHLB members must meet the 1% threshold when applying for membership, but do not need to maintain it.

All member credit unions, but only certain member banks, would be required to hold 10% of assets in residential mortgage loans on an ongoing basis.

According to CUNA, the proposal is unnecessary, since the FHFA's data shows that approximately 98% of FHLB members already comply with the 10% requirement, and half of the remaining institutions holds more than 9% of assets in mortgages.

"If the proposal is adopted, rather than allowing a commitment to housing to develop organically in the normal course of business, the proposal would require credit unions to constantly monitor their mortgage loan levels and face the loss of FHLB membership if they fail to maintain lending levels that are not required by law," the letter reads.

CUNA is also concerned that the proposal would require credit unions to needlessly alter their business practices, due to the increased compliance burden needed to continually monitor assets.

"The on-going asset tracking that would result under the proposal would also add regulatory burdens for the Federal Home Loan Banks. Under the proposal, each FHLB would be responsible for ensuring that its members are in compliance with these arbitrary asset thresholds," the letter reads. "The compliance costs of each FHLB would undoubtedly be passed along to the financial institutions that borrow from the System. The end result will be higher costs of credit for consumers. Given the still fragile state of the American housing sector, now is not the time to impose further (and unnecessary) hurdles and higher costs on mortgage and housing related lending."

Should the proposal not be withdrawn, CUNA has urged the FHFA to provide parity for credit unions, by treating both types of entities equally for purposes of maintaining membership.