The Federal Home Loan Bank System

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The Federal Home Loan Bank System
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The 12 regional FHLBanks are cooperative
wholesale banks created by Congress in 1932.
Their mission is to provide liquidity to support
housing finance and community lending for over
8,000 local financial institutions.
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What are the FHLBanks?

• Mission is to facilitate increased homeownership
  and economic development, but different than
  Fannie Mae and Freddie Mac.
• Federal Home Loan Bank System
• Provides liquidity to financial institutions
  through various types of funding for residential
  and community development.
• Some FHLBanks compete with Fannie and Freddie by
  purchasing mortgages through their own mortgage
  programs.
• Fannie Mae and Freddie Mac buy large volumes of
  residential mortgages, bundle them into
  securities, and sell mortgage backed bonds and
  securities to investors.
• Implicit (not explicit) government guarantee on
  debt issues AAA rated.
• Federal Home Loan Banks, Fannie Mae, and Freddie
  Mac are regulated by the Federal Housing Finance
  Agency.

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FHLBank Membership Composition

1990 2009
Savings Banks Thrifts 2,779 1,139
Commercial Banks 55 5,706
Credit Unions 3 1,003
Insurance Companies 4 209
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The FHLBank System How It Works
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Why the FHLBanks Work

• The Federal Home Loan Banks' cooperative
  structure gives members access to funding that
  enables them to advance credit to businesses in
  all economic cycles.
• Many large and small institutions are financing
  their community lending through low-cost funds
  from a regional Federal Home Loan Bank.
• For a majority of members, the Federal Home Loan
  Banks are the only source of access to the global
  credit markets.
• Each Federal Home Loan Bank is regionally focused
  and controlled, allowing it to be responsive to
  the specific credit needs of the communities it
  serves.

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FHLBanks Affordable Housing Program

• The Affordable Housing Program (AHP) is the
  largest source of private sector funds for
  housing and community development in the country.
• Funded with 10 of the Federal Home Loan Banks'
  net income each year.
• Allows for funds to be used in combination with
  other programs and funding sources, like the
  Low-Income Housing Tax Credit.
• Funded projects serve seniors, the disabled,
  homeless families, first-time homeowners and
  others with limited resources
• Since 1990, AHP has awarded over 3 billion to
  help fund more than 623,000 housing units have
  been built using AHP funds, including 391,000
  units for very low-income residents.

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Community Lending
Banks public service mission is to create a
range of products and services to benefit its
members and the communities they serve thereby
fostering partnerships
Credit Programs
Grant Programs
Outreach and Technical Assistance
Initiatives
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Community Lending

• The FHLBanks accomplish that objective through
• Affordable Housing Program10 Banks profits
• Competitive
• Set-Aside (WISH and IDEA)
• Access to Housing and Economic Assistance for
  Development (AHEAD) ProgramFHLBSF Initiative
• Discounted Credit Advances and Letters of Credit
• Community Investment Program (CIP)
• Advances for Community Enterprise (ACE)
• Non-Housing Tax-Exempt Letters of Credit

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Community Lending

• Grant Programs
• Competitive AHP
• Since 1990 the FHLBanks have nearly 4 billion,
  helping to
• create more than 623,000 units of quality
  affordable housing
• Since 1990, FHLBSF has awarded 632 million in
  grants helping to fund
• over 95,000 units in CA, AZ, NV, and other areas
  served by our members
• Scored on a 100-point system
• Two annual competitions
• Only for low- moderate income housing
  beneficiaries earn lt or 80 of area median
  income
• Rental monitoring for 15 years
• Owner-occupied 1-time monitoring, 5 year
  retention

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Community Lending

• Grant Programs
• Homeownership Set-Aside Programs IDEA WISH
• Since the year 2000, 22 million to 2,200
  households served
• 15,000 per household
• Members may reserve up to 1 million annually per
  program
• Non Competitive
• Offered once a year
• 1 year term limit for use with grant
• All monitoring done at time of disbursement of
  subsidy to the member
• 5 year retention

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Community Lending

• Grant Programs
• Homeownership Set-Aside Programs
• IDEA -- Individual Development Empowerment
  Account
• grants matched to IDA or FSS program
• WISH -- Workforce Initiative Subsidy for
  Homeownership
• grants leveraged by homebuyers contribution

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Community Lending
FHLBSF Affordable Housing Programs 2010
Allocations
Competitive 58.8 mm Homeownership Set-Aside
14.6 mm (IDEA 4.345 mm, WISH 10.25 mm)
estimated allocation including de-obligated
subsidy from previous years set-aside and
competitive programs
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Community Lending

• Homeownership Set-Aside Programs IDEA WISH
  typical financing

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Community Lending

• Access for Housing and Economic Assistance for
  Development
• (AHEAD Program)
• Provides predevelopment funds
• Supports traditional housing projects as well as
  innovative economic development projects
• 2,519,000 awarded from 2004 to 2009

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Community Lending
Credit Programs

• HPA Advance
• Advances to modify or refinance
• loans of targeted homeowners
• potentially at risk of default on
• primary residence
• CIP and ACE Advances
• Advances and LCs offered below regular rates
• CIP - Mainly to support residential lending
• ACE - Mainly to support small business and
  economic development lending
• Member limit combined 200 million

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Community Lending
Standby Letters of Credit (LOCs)

• Housing Letters of Credit
• Non-Housing Related Tax-Exempt LOCs (HERA)
• Public Purpose and Industrial Development
  projects
• Project Examples
• FHLBank of Dallas
• Kenner Theatres, LLC Project, New Orleans, LA
• Member Bank First NBC Bank
• Bond Issuer Louisiana Local Government
  Environmental Facilities Community Development
  Authority
• Letter of Credit 3.65 Million
• FHLBank of Pittsburgh
• University Student Housing, LLC Project - West
  Chester University of PA
• Member Bank Citizens Bank of Pennsylvania
• Bond Issuer Chester County Industrial
  Development Authority
• Letter of Credit 100.34 Million

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Community Lending
Standby Letters of Credit (LOCs)

• Project Examples FHLBank of San Francisco
• McGarry Street, LLC / Green Farms Inc. Los
  Angeles, CA
• Member Bank California Bank Trust
• Bond Issuer Industrial Development Authority of
  the City of Los Angeles
• Letter of Credit 3 Million
• Guy Evans Inc. Indio, CA
• Member Bank California Bank Trust
• Bond Issuer County of Riverside Variable-Rate
  Demand Empowerment Zone Facility Revenue Bonds
• Letter of Credit 6 Million
• 2 Projects expected to retain or create
  approximately 325 jobs in Southern California
• gt 28,000 per job
• Smallest 1.2 million Largest 308.5
  million
• Total LOCs Issued by FHLBanks 4,097,791,031
  for 158 Projects

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Legislative Update

• In May, Reps Pascrell (D-NJ), Boustany (R-LA),
  and Kanjorski (D-PA)
• introduced H.R. 5311, the Community Development
  Financing Act of 2010
• Amend the Internal Revenue Code of 1986 to make
  permanent the treatment of municipal bonds
  guaranteed by Federal Home Loan Banks as tax
  exempt bonds.  
• Wall Street Reform Bill is currently in
  Conference
• Senate and House Conferees are working out
  differences between the two versions
• Plan to have President sign before July 4th
  Recess

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Treasurys Seven Questions

• 1) How should federal housing finance policy
  objectives be prioritized in the context of
  broader objectives of housing policy?
• The Treasury added The commentary could
  address policy for sustainable homeownership
  rental policy balancing rental and ownership
  how to account for regional differences and
  affordability goals.

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Treasurys Seven Questions

• 2) What role should the federal government play
  in supporting a stable, well-functioning housing
  finance system and what risks, if any, should the
  federal government bear in meeting its housing
  finance objectives?
• The Treasury added The commentary could
  address level of government involvement and type
  of support providedrole of private vs. public
  capitalrole of any explicit government
  guarantees role of direct subsidieshow to
  balance the retention and distribution of
  riskand mechanisms for dealing with episodes of
  market stress.

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Treasurys Seven Questions

• 3) Should the government approach differ across
  different segments of the market? And if so, how?
• The Treasury added The commentary could
  address differentiation of approach based on
  mortgage size or other characteristics
  differentiation in mechanisms to convey
  subsidies.

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Treasurys Seven Questions

• 4) Should the current organization of the housing
  finance system be improved?
• The Treasury added what aspects should be
  preservedoptimal general organizational design
  and market structure, capital market functions,
  sources of fundingthe role of existing
  government sponsored enterprises.

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Treasurys Seven Questions

• 5) How should the housing finance system support
  sound market practices?
• The Treasury added The commentary could
  addresshow best to balance risk and access and
  extent to which housing finance systems that
  reference certain standards and mortgage products
  contribute to this objective.

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Treasurys Seven Questions

• 6) What is the best way for the housing finance
  system to help ensure consumers are protected
  from unfair, abusive or deceptive practices?
• The Treasury added The commentary could address
  level of consumer protections and limitations,
  supervising agenciesand role of consumer
  education.

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Treasurys Seven Questions

• 7. Do housing finance systems in other countries
  offer insights that can help inform U.S. reform
  choices?
• Comment Period Closes July 21, 2010
• TREAS-DO-2010-0001-0012.1
• This is comment on PROPOSED RULE Public Input on
  Reform of the Housing Finance System
• Docket ID
• TREAS-DO-2010-0001

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Poised for the Future

• The Federal Home Loan Banks are the critical
  liquidity source that fund our financial
  institutions so our communities have access to
  credit.
• In a restructured financial system, the Federal
  Home Loan Banks will continue to function as
  steady and reliable funding mechanisms for
  housing, jobs, and economic development.

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For more information

• Council of Federal Home Loan Banks
  www.FHLBanks.com