CUNA Regulatory Comment Call
March 30, 2000
Amendments to Federal Home Loan Bank Rules on Membership and Advances
EXECUTIVE SUMMARY
The Federal Housing Finance Board (Board) requests comments on an interim rule that amends its regulations to obtain membership in and advances from the Federal Home Loan Banks (FHLBanks). This April 10th notice was published in the Federal Register on March 15, 2000 and the interim final rule was effective as of March 15, 2000. The Board must receive, written comments on or before April 14, 2000. Please submit your comments to CUNA by April 10, 2000, by fax at 202/371-8240 or by e-mail to CUNA's Assistant General Counsel Michelle Profit at Mprofit@cuna.com. You may access a copy of the notice here. The interim rule will do the following:
- The interim rule will eliminate many restrictions imposed on certain FHLBank members, such as credit unions, that did not meet the qualified thrift lender (QTL) test (65 percent of portfolio assets in real estate, educational or small business loans). As a result, non-QTL members will not have their advances limited to 30 percent of the total for all advances made by FHLBanks, and QTL members will no longer have priority over non-QTL members in obtaining advances. Also, discriminatory stock purchase requirements for non-QTL members are gone. Those requirements meant that credit unions received less in advance money than QTLs that had equivalent capital stock in a FHLBank. These amendments are required by the Federal Home Loan Bank System Modernization Act of 1999 and are effective immediately.
- All FHLBank members now have the same requirement for purchasing a minimum amount of capital stock from a FHLBank. Members must purchase the greater of $500 or 5 percent of the member's aggregate amount of outstanding advances.
- The amendments allow a credit union that withdraws from membership to be readmitted in 5 years, as opposed to 10 years, which was the readmission requirement under the old rules.
- The rule clarifies that a new credit union that applies for membership has one year to meet the requirement that 10 percent of its assets be in residential mortgage loans. New credit unions that do not comply with this requirement in 1 year will have their membership voided.
- Credit unions are not eligible for the community financial institution exemption. This exemption allows savings associations and banks that have less than $500 million in average total assets over the preceding three years to become members of a FHLBank system, even if they do not have 10 percent of their assets in residential mortgages. The Federal Home Loan Bank Modernization Act of 1999 defines community financial institutions as institutions insured by the Federal Deposit Insurance Corporation.
BRIEF BACKGROUIND
The Federal Home Loan Bank System is comprised of twelve FHLBanks, which are cooperatives. The members of a FHLBank own the capital stock of a FHLBank. Any insured depository institution may become a member of a FHLBank if it meets certain criteria and purchases a specified amount of the FHLBank's capital stock. Only these members and eligible nonmembers' borrowers (such as state housing finance agencies) may obtain access to the products the FHLBank provides. Each FHLBank provides products that enhance the availability of residential mortgage and community lending credit to its members and eligible nonmembers.
As a government-sponsored-enterprise, the FHLBanks can offer these products because they are granted certain privileges that enable them to borrow funds in the capital markets on terms more favorable than those that could be obtained by others. The FHLBanks pass along their GSE funding advantage to their members by providing advances (secured loans) and other financial services at rates that would not otherwise be available to their members. The FHLBanks have authority to make advances in support of housing finance and community lending. In particular, they are required to offer two programs, the Affordable Housing Program and the Community Investment Program, to provide subsidized or at-cost advances, respectively, in support of unmet housing finance or targeted economic development credit needs. In addition, the FHLBanks may establish Community Investment Cash Advances Program for community lending, which is defined as providing financing for economic development projects for targeted beneficiaries.
Credit unions became eligible to become members of a FHLBank with the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. According to the FHLBank of Seattle, there are 4,298 credit unions eligible for membership; however, only 405 of these credit unions, approximately 9 percent, are members.
QUESTIONS REGARDING THE PROPOSAL
Do you think these changes will facilitate credit unions use of the FHLBank system? Why or why not?
Should any other changes, suggestions or comments be made to the FHLBank system?
The Board requests comments on what source of data should be used in calculating the average of total assets over the three preceding years.
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
