CHLA wants IMBs to be eligible for FHLBank membership

The Community Home Lenders of America (CHLA) is asking the Federal Housing Finance Agency (FHFA) to expand Federal Home Loan Bank System membership to independent mortgage banks as the agency considers eliminating regulations governing new FHLBank business activities.

In an Aug. 12 letter addressed to FHFA general counsel Clinton Jones, the trade group supported the agency’s proposal to repeal regulations that govern FHLBank new business activities. CHLA said the regulation contains “overly prescriptive and duplicative requirements” that can limit the FHLBanks’ flexibility.

“CHLA supports giving the FHLBanks greater operational flexibility,” the letter explained in calling for guardrails. “However, that flexibility should not result in the expansion of activities that could create unnecessary risk to the System or blur the distinction between the FHLBanks and Fannie Mae/Freddie Mac.”

CHLA outlined three priorities for FHFA: maintaining safeguards around significant new FHLBank activities, expanding membership and liquidity access to IMBs, and ensuring continued membership remains tied to ongoing mortgage lending activity.

CHLA specifically raised concerns about potential expansion of FHLBank programs involving the direct acquisition of residential mortgages. FHLBanks already can acquire eligible mortgage assets through their Acquired Member Assets (AMA) programs, but CHLA said repealing the relevant regulation — Part 1272 of the Code of Federal Regulations — could make it easier to expand mortgage purchase activities without the same level of review for new or material risks.

The trade group has previously opposed proposals that would move FHLBanks closer to direct loan purchasing functions associated with the government-sponsored enterprises.

CHLA seeks IMB membership

CHLA also renewed its call to make IMBs eligible for FHLBank membership. Current eligible members include commercial banks, thrifts, credit unions, Community Development Financial Institutions (CDFIs) and insurance companies that meet applicable requirements. IMBs are excluded.

CHLA said that exclusion no longer reflects the structure of the mortgage market. IMBs account for about 84% of mortgage originations and a significant share of government and agency lending, according to the group.

IMBs also serve substantial numbers of low- and moderate-income, minority and other underserved borrowers. Unlike depository institutions, however, they rely primarily on private warehouse funding rather than deposits to finance mortgage originations.

CHLA said qualified IMBs should be allowed to join the FHLBank System under appropriate capital, collateral, borrowing and risk-management requirements.

“Providing qualified IMBs with access to FHLBank liquidity would better align the System’s public benefits with the institutions that now perform a substantial share of the nation’s mortgage lending,” CHLA said.

The group also urged FHFA to consider whether continued FHLBank membership should be linked more directly to ongoing mortgage lending.

FHFA previously declined to require members to maintain a specific minimum level of residential mortgage assets. CHLA said the agency should consider annual reviews of members’ mortgage lending activity to ensure continued access to FHLBank benefits remains connected to the system’s housing mission.

CHLA ultimately supports repealing Part 1272 but said the change should include safeguards around new activities and modernization of FHLBank membership.