No one is accusing the Federal Housing Finance Agency of moving too hastily in coming forward with its centennial report,
The 117-page document can be conveniently broken down into what it says, what it doesn't say and what it only hints at (albeit with a megaphone that can be heard from Boston to San Francisco).
It says the 11 Home Loan banks have a dual mission, liquidity for their members and housing and community development for their neighborhoods. It doesn't say how much the taxpayers are paying to subsidize this $1.5 trillion bureaucracy. It hints loudly that the herd of eleven lumbering Home Loan banks will soon be culled to eight or fewer, and that out-of-control executive compensation will be reduced on an order of 80%.
Within the castle walls of the Home Loan banks, news that their mission had been redefined to include "housing and community development" must have come as a shock. In a recent
Williams interrupted me to say that she had, in fact, asked Ryan Donovan, president and CEO of the Council of Federal Home Loan Banks, that very question, and played back his answer.
"Let's keep in mind, the whole purpose of the Home Loan Bank System is to provide liquidity to our members in all market environments," Donovan said.
What a bummer to have your regulator inform you that the mission you've been pursuing for many decades was all wrong. And hot on the heels of its report, the agency is expected to come forward with a proposed rulemaking to redefine the mission of the Home Loan banks.
The banks will be faced with a dilemma.
Do they go along with the new dual-mission statement hoping that a new administration a little over a year from now will oust FHFA Director Sandra Thompson and that her successor will reverse the rule, or, that a new Congress in 2024 will repeal her rule under the Congressional Review Act?
Alternatively, the Home Loan banks can challenge the agency's redefinition of their mission using the Supreme Court's new and muscular
Of course, there is a third path that has been there all the time.
The Home Loan banks can embrace the new mission in letter and in spirit. This would call, however, for a cultural and operational reformation within each of them. This path has always been open. However, they have chosen not to take it, preferring, instead, to hew to Mr. Donovan's guidance that the "whole purpose" of the Home Loan banks is to serve their members.
Here's hoping for a better result this time.
In her first remarks since the release of a sweeping report on the banks, Federal Housing Finance Agency Director Sandra Thompson urges them to strengthen underwriting and communication with their members' regulators.
What, one might ask, gives the agency the authority to redefine the mission of the Home Loan banks? The answer is that taxpayers are their primary stakeholders. Like mortgage giants Fannie Mae and Freddie Mac, the Home Loan banks are government sponsored enterprises. Taxpayers put the "G" in GSE. It is the taxpayers' subsidy of the Home Loan banks — their guarantee of Home Loan bank debt and the tax-exempt status granted to each of the banks — that is at the core of the business model.
It was disappointing, therefore, that the report did not take on the challenge of quantifying the subsidy. Buried in footnotes, it is gleaned that the subsidy is somewhere between $10 million and $6 billion per year. That is not helpful. Nor is it useful in determining how much of the taxpayer subsidy should be devoted to housing and community development.
The last time the Congressional Budget Office
Without measuring the taxpayer subsidy, the agency recommends that Congress increase the statutory affordable housing assessment from 10% to 20% of the Home Loan banks' yearly net income. That sounds significant. However, when 20% is stacked against the taxpayer subsidy the increase is marginal at best.
As if to drive home how hopelessly small the increment is, the agency points out that for many years the Home Loan banks paid a 20% annual fee to redeem bonds left over from the S&L crisis on top of the 10% affordable housing assessment. No effort is made to explain why the banks could not easily carry the same 30% burden today to help address the raging national housing crisis. After all, in a public-private partnership such as the Home Loan banks, isn't a 30-70 split something the banks should be very happy about?
But no one is there to remind them about the taxpayer subsidy.
As a result, the Home Loan banks are free to spend as much as they wish on compensation, dividends, perks, bad loans, lobbying and duplicate systems … and they do. The cost savings from having fewer banks will be enormous. The savings from consolidation will dwarf today's paltry contributions to affordable housing and community development, but only so long as the Agency keeps a vigilant eye on the use of the savings.
By measuring the subsidy and achieving efficiencies, taxpayers and housing advocates will be able to make their own informed judgments whether the Home Loan banks' returns to the public (a few hundred million dollars) justify the annual taxpayers' subsidy (several billion dollars).
I can already hear the Home Loan banks' vice-grip on Congress loosening.
"FHLBank System at 100" is a call to action not a call to reaction. Viewed in that light, stakeholders of every variety can emerge as winners.
