ICYMI: At Hearing, Warren Highlights Federal Home Loan Banks’ Failures to Meet Affordable Housing Mission, Calls on Housing Regulators to Act
Government-Subsidized Federal Home Loan Banks Spent 8.5x More on Dividends than Affordable Housing Programs
“I strongly urge FHFA to issue its proposed rulemakings to address FHLBs’ mission and membership as soon as possible. The FHLBs should be tackling our nation’s housing crisis, not doling out corporate welfare to our country’s biggest banks and insurance companies.”
Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) called out the Federal Home Loan Banks (FHLBs) for failing to deliver on their mission to provide affordable housing as the country faces a housing crisis. Senator Warren called on the Federal Housing Finance Agency (FHFA) to take action as the primary regulator of the FHLBs.
In return for an implied government guarantee, favorable regulatory treatment, and special tax status, FHLBs are supposed to provide liquidity to their members to support housing and community development. In fiscal year 2024, FHLBs will receive approximately $7.3 billion in public subsidies. Senator Warren noted however that in 2023, FHLBs only spent $395 million on affordable housing programs, while spending 8.5 times that amount, $3.4 billion, on dividends for their members like banks and insurance companies. She also noted that in the last 5 years, 42% of FHLBs did not originate a single mortgage.
In response to Senator Warren’s questions, Sandra Thompson, Director of FHFA, agreed that FHFA needs to recenter FHLBs’ mission around affordable housing and that rules should be changed so that FHLB members must hold at least 10% of their assets in residential mortgages on an ongoing basis.
Transcript: Oversight of Federal Housing Regulators
United States Senate Committee on Banking, Housing, and Urban Affairs
Thursday, April 18, 2024
Senator Elizabeth Warren: So in 1932, Congress created the Federal Home Loan Bank System to tackle the biggest housing crisis of the last century, the Great Depression. And the basic idea was simple: the federal government offered help in the form of an implied government guarantee, favorable regulatory treatment, and special tax status. And then in return, the FHLBs would provide liquidity to their members to support housing and community development.
Today, we are in the middle of another housing crisis. By some estimates, we are short 7 million housing units nationwide. But in this critical moment, the FHLBs are missing in action on their affordable housing mission. Last month, the Congressional Budget Office released a report that for the first time put a number on how much the FHLBs received in public subsidies. In fiscal year 2024 alone, that number was a whopping $7.3 billion.
Director Thompson, in 2023, how much of these public subsidies did the FHLBs spend on affordable housing programs?
Sandra Thompson, Director, Federal Housing Finance Agency: I think it was approximately $390 million, I think 350–
Senator Warren: Okay, $390 million. So that means the vast majority of the subsidies the federal government poured into the FHLBs went somewhere other than to affordable housing. Only a tiny fraction went to affordable housing. So where did the taxpayer money go?
Director Thompson, in that same year, how much did the FHLBs spend on dividends for their members like banks and insurance companies?
Director Thompson: Approximately 3.4 trillion–
Senator Warren: Billion.
Director Thompson: Billion, billion, I'm sorry. B, with a b.
Senator Warren: Okay, so just so we're clear here, the FHLBs spent eight and a half times as much on dividends to their members than they did on affordable housing. I think that's right, just the math here.
But not all of those federal dollars, those taxpayer dollars, went to dividends, there's still some money leftover. According to the GAO, the FHLBs lent tens of billions of dollars to prop up Silicon Valley Bank, Signature Bank, and First Republic Bank before they failed.
Director Thompson, FHFA is the primary regulator for the FHLBs. Do you agree that it is important for the FHFA to clarify that the mission of the FHLBs is to provide liquidity for housing and community development, not simply to prop up failing banks and hand out dividends?
Director Thompson: Absolutely, thank you for the question, Senator. We conducted a year-long review of the Home Loan Bank System. We conducted 17 listening sessions around the country, and we heard exactly that. That the Home Loan Banks are very, they have a dual mission. One is to provide stability and liquidity to their members, but the other is to support the communities that they live in through affordable housing development and community development.
And there is a huge affordability issue. There are huge supply issues, and the Home Loan Banks are well positioned to do a lot more. And that's one of our recommendations from our report.
Senator Warren: And I appreciate that. It’s not enough to be well positioned if they are taking the money and then not spending it to accomplish that. So I think clarifying the mission of the FHLBs is an important start. But I think we also need to take a look at who lines up for these federal subsidies.
Remember, these government subsidies are to promote housing. But in the last five years, five full years, 42% of FHLBs members did not originate a single mortgage, not one. 42%. So how did this happen?
Well, it turns out under the current rules, members only need to hold at least 10% of their assets in residential mortgage loans at the time they apply to join a FHLB. Once you're in, you're in, and you can get out of the housing finance business while you take advantage of these government subsidies.
Director Thompson, should the FHFA change the rules so that members must hold at least 10% of their assets in residential mortgages on an ongoing basis in order to remain eligible for FHLB financing?
Director Thompson: That was one of the recommendations in our report. We are going to promulgate rulemaking sometime this year to talk about membership. One, to define what the role is of membership, and to also ask questions about what that threshold should be, because you will have a situation like the one of the three bank failures, where you start out with the 10% and meet the requirement, and then the bank's business model changes, and there's no ongoing checks for them to access the Home Loan Bank System.
So that is rulemaking. It will be very transparent, and we're looking forward to engaging in that discussion.
Senator Warren: I strongly urge the FHFA to issue its proposed rulemakings to address the FHLBs’ mission and membership as soon as possible. The FHLB should be tackling our nation's housing crisis, not doling out corporate welfare to these giant banks and to members that aren't even in the housing business. Thank you. Thank you, Mr. Chairman.
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