FHFA Issues Long-Awaited Final Rule on Home Loan Bank Membership

The Federal Housing Finance Agency (“FHFA”) issued a final rule governing Federal Home Loan Bank (“FHLB”) membership requirements on January 12th. The FHFA dropped a part of the 2014 proposal that would have required Home Loan Bank members to maintain a certain percentage of residential mortgage assets in order to keep their membership. An article in National Mortgage News states, “[t]he FHFA acknowledged that 98% of members are already in compliance with the proposed requirements, and that it was too burdensome to impose a new requirement just to weed out the remaining 2%.” In addition, the FHFA is prohibiting real estate investment trusts from accessing funding through the Home Loan Bank system by defining “insurance companies” to exclude “captive insurers” in the final rule. “All current captive insurance companies who are members of the system must exit over the next five years,” said the FHFA.

Many Home Loan Banks said that prohibiting REITs from accessing the system was a mistake and a bipartisan group of lawmakers introduced a bill in October that was aimed at stopping the FHFA from finalizing its plan. The Director of FHFA, Melvin Watt said, “FHFA has the authority and the duty to implement the statutory membership provisions of the Federal Home Loan Bank Act and by adopting the proposal to exclude captives from the definition of insurance company we are making sure that institutions can’t frustrate the intent of Congress.”

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