WASHINGTON–The Federal Housing Finance Agency said it plans to launch this fall a review of the structure and role of the Federal Home Loan Banks, including whether to expand services to include nonbank mortgage companies and real-estate investment trusts.
The 90-year-old system, which represents a nearly $1 trillion network of government-chartered cooperatives that provide cheap funding to thousands of financial institutions, “has drawn scrutiny from current and former policy makers over whether its modern-day activities fully match its original mission of supporting mortgage lending,” according to the Wall Street Journal.
According to the report, the FHFA has yet to outline an overriding goal for its review, but it could lead to a push to expand the membership of the system to nonbank mortgage companies and real-estate investment trusts, potentially making the system more housing-focused after decades of what critics characterize as drift.
Additional Purposes?
It also opens up the possibility of the system serving purposes in addition to housing, the Journal added.
“Founded during the Great Depression, the home-loan banks’ role has evolved. They were an important source of liquidity to commercial banks during the financial crisis of 2008,” the Journal reported. “Since then, they have also become a supplier of cheap funding to some of the largest U.S. banks, in recent years including Wells Fargo & Co. and JPMorgan Chase & Co.”
The review will ensure the home-loan banks “remain positioned to meet the needs of today and tomorrow,” FHFA Director Sandra Thompson said.
Big New Players
The Journal further noted that nonbank mortgage companies and real-estate investment trusts have come to play big roles in housing finance but generally aren’t among the 6,500 members of the home-loan bank system.
“Critics characterize the home-loan banks as an institution from an earlier era that today is primarily focused on channeling unjustified government subsidies to large banks. Some have called for the system to be repurposed to have a clearer public-focused mission,” the Journal added.
In Search of a Purpose
Cornelius Hurley, an adjunct professor at Boston University’s School of Law who formerly served on the board of the Home Loan Bank of Boston, told the Journal, the federal home loan banks “are a bureaucracy in search of a public purpose.”