FHFA's Home Loan bank report is a policy unicorn. Don't let it escape.

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The Federal Housing Finance Agency (FHFA) recently released its much-anticipated review of the Federal Home Loan Bank System, and it was worth the wait. The report, FHLB System at 100: Focusing on the Future, speaks to one of the most urgent problems in this country: affordable housing, especially for low- and moderate-income families.

The average rent for an American has increased by 22% and the average home price has climbed by a whopping 46% since late 2019. Both the dream of first-time homeownership and the reality of monthly rent are increasingly unattainable for many young families. As the nationwide housing crisis escalates, the inadequacies of today's Home Loan Bank System — designed during the Great Depression to make home ownership achievable to more Americans — become even more glaring. It's time for a change.

The FHFA report offers over 50 specific recommendations to address the system's shortfalls and is worth serious consideration.

But there's another reason to act on this report: It's a policy unicorn. It's that rare thing you never see in the nation's capital anymore — a balanced plan on a complex issue that could have lasting impact on a difficult problem with broad public support and no impact on federal spending or taxes.

As the CEO of IFF, one of the first Community Development Financial Institutions to join the Home Loan Bank System in 2010 after Congress opened the doors to us through legislation, I am both a booster and reformer of the system. I know firsthand how the Home Loan banks' liquidity can get more capital into communities. But I have also seen CDFIs struggle to access liquidity through opaque, inconsistent and unreasonable collateral requirements.

As the chair of the CDFI-FHLB Working Group, I lead a coalition of 35 non-depository Home Loan bank-member CDFIs working for better access to capital for affordable housing and community development projects. We are active shareholding members of the Home Loan banks — with a stake in the system's success — but also mission-driven financial institutions deeply committed to building thriving and more equitable communities, not simply to maximizing shareholder profits.

The report delineates a clear path for the FHFA, the Home Loan banks and member CDFIs to collaborate, using the system's tools and resources in service to our nation's communities. Rather than get stuck on a few hot-button issues, we see an opportunity to build upon the constructive conversations that led up to the report.

First, let's start with what we all agree is most important and achievable: clarifying the public mission of the Home Loan Bank System and creating clear metrics of accountability.

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Without a clear imperative for how the system should meet its mission, all other recommendations are meaningless. The system presently views its primary mission as providing liquidity to its private institutional members. But the FHFA's report clearly states that this liquidity must be in service to a public purpose like affordable housing and economic development, not simply private speculation like cryptocurrency investments. For the Home Loan Bank System to work for everyone, we must clarify its mission and how to measure it. The old business adage "what gets measured gets done" holds true here.

Second, let's immediately move forward on a major point of consensus: directing more of the system's attention and profits toward affordable housing and community development.

Another key recommendation is for the Home Loan banks to voluntarily increase their Affordable Housing Program (AHP) contributions to at least 20% of their prior year's net earnings, up from the statutorily required minimum of 10%. The FHFA report makes clear that the Federal Home Loan banks retain substantially more earnings and, thus, could easily contribute more for the benefit of communities. That's the least they can do in exchange for their tax exemption, which allows them to pay hefty dividends to their members. No legislation is needed for this increase, and the Home Loan banks and the CEOs of our nation's largest banks have already agreed to an increase to 15%.

Third, let's work together to realize the system's public mission, starting with a "mission-oriented collateral" program that treats CDFIs like community financial institutions.

Home Loan banks still struggle to understand and fairly treat CDFIs' collateral. To address this, the FHFA report recommends the creation of mission-oriented collateral programs, allowing CDFIs to pledge collateral with a strong connection to the system's public mission. It calls for the banks to expand voluntary and pilot programs, which help increase the production, rehabilitation and preservation of multifamily housing.

Private banks have long understood that CDFIs can more effectively deploy capital to disinvested communities and borrowers. They invest hundreds of millions of dollars into CDFIs to meet their Community Reinvestment Act obligations. Home Loan banks should similarly model their partnership with CDFI members.

We shouldn't be surprised by the incredible potential of the FHFA's report. Its review process was thorough and transparent, including dozens of public roundtables and listening sessions and hundreds of written comments from a range of stakeholders. The report wasn't assembled in a smoke-filled room in Washington, D.C., but it's not without controversy. Any full-fledged review of the Home Loan Bank System — a complex, cooperative network of government-sponsored financial institutions — was bound to touch on a few sensitive issues.

Perhaps most sensitive is the FHFA's consideration of a new rule requiring most Home Loan bank members to maintain at least 10% of their assets in residential mortgages or other mission assets. Today's banking and mortgage lending have changed so much that enforcing this requirement is trickier than it might seem. But why focus on the report's more contentious recommendations when others are so readily achievable to create tangible and lasting impact?

The Home Loan bank presidents have an opportunity for action to help real people in real communities, rather than reaction to maintain the status quo through PR consultants and lobbyists. This public review of the system has shown that the status quo is not sustainable. By implementing the most important recommendations in the report, the Federal Home Loan Bank System can once again be a vital instrument in making housing affordable and communities thriving and stable.