According to HousingWire, the Community Home Lenders of America has sent a letter to the Federal Housing Finance Agency asking for changes to how the Federal Home Loan Bank System operates. The group supports the agency's plan to eliminate certain regulations that govern what new business activities the FHLBanks can take on, saying those rules are too rigid and limit how the system can work.
However, CHLA wants the FHFA to be careful about how much freedom it gives to these banks. The group is concerned that removing all restrictions could lead FHLBanks to get involved in activities that create unnecessary risk or that make them look too much like Fannie Mae and Freddie Mac. CHLA specifically worried about the possibility of FHLBanks buying mortgages directly in ways that go beyond their current programs without proper oversight of any new risks.
The bigger push from CHLA is to open up FHLBank membership to independent mortgage banks, which are currently excluded from joining the system. Right now, only commercial banks, thrifts, credit unions, community development organizations, and certain insurance companies can be members. CHLA points out that independent mortgage banks now handle the vast majority of mortgages being originated in this country and serve a lot of borrowers who are lower income or from underserved communities.
The challenge with independent mortgage banks is that they don't have deposit accounts like traditional banks do. Instead, they rely on other funding sources to finance their lending operations. CHLA believes that if qualified independent mortgage banks were allowed to tap into FHLBank liquidity, it would help these lenders while also making sure the FHLBank system's benefits align with where the real lending action is happening in today's mortgage market.
CHLA also suggested that the FHFA think about tying ongoing membership benefits more directly to whether members are actually doing mortgage lending work. The agency had previously decided not to require members to hold a minimum amount of residential mortgages, but CHLA thinks annual reviews of members' lending activity would help keep the system focused on its housing mission.
What I am seeing locally here in the Bay Area and across the East Bay is that independent mortgage banks have become essential players in getting deals done for our buyers and sellers. If these lenders had better access to liquidity through a system like FHLBanks, it could mean faster closings and potentially more lending options for borrowers in our market. For sellers, that means a broader pool of qualified buyers. For buyers, especially those who don't fit traditional bank molds, it could open more doors.
