The outlook for the Federal Home Loan Banks is stable, but Standard & Poors’ Global Ratings points to a few potential weaknesses that could threaten the health of the system. S&P pointed to the small but growing exposure to nondepository financial institutions as a cause for concern. The rating agency also warned of challenges to broad-based advance growth and longer-term uncertainty due to potential legislative changes associated with housing-finance reform. And although the FHLBanks have increased their reliance on short-term funding in response to demand from its members, S&P said, “Given the generally match-funded approach to issuance, as well as the overcollateralization of advances to members, we believe that the tenor of the system's funding remains manageable.”

House Financial Services Committee Chairman Jeb Hensarling, R-TX, unveiled long-awaited legislation on government-sponsored enterprise reform that would enhance Ginnie Mae’s role in the secondary mortgage market. Hensarling referred to the bill – the Bipartisan Housing Reform Act of 2018 – as a “bipartisan compromise housing-reform plan” that preserves the government guarantee in the secondary mortgage market. The chairman collaborated with Rep. John Delaney, D-MD, in crafting the bill, which calls for the repeal of the federal charters of Fannie Mae and Freddie Mac. The bill would shift the secondary market to a system that allows pooling of qualified conventional mortgages backed by government-approved private guarantors with regulated capital. These loans could be pooled in mortgage-backed securities with explicit government guarantees provided by Ginnie. The new MBS program would be ...

Rising interest rates continue to benefit the Federal Home Loan Banks whose net income was up by more than 10 percent for the first half of the year, according to a report released this week by Moody’s Investors Service. FHLBank net income was $1.83 billion in the first six months of 2018, up from the $1.67 billion a year earlier. This reflected a 10.45 percent increase that was driven by growth in net interest income, partially offset by lower non-interest income. Moody’s noted that yields on both advances and liabilities increased because of higher interest rates. Overall, the net interest margin improved nine basis points to 0.47 percent from the same period in 2017.

The examinations of the Federal Home Loan Banks’ community investment programs were not up to par, according to a recent report by the Federal Housing Finance Agency’s Office of Inspector General, which faulted the program for having examiners review their own work. The report noted that the quality control reviews of community investment examinations didn’t meet FHFA’s standard for independence. In other words, the examination specialists who performed the quality control reviews for community investment examinations didn’t follow FHFA’s guidelines because the specialist was not independent of the examination process. In fact, the IG noted, “All 11 quality control reviews of community investment examinations conducted during the 2017...

New guidance issued to the Federal Home Loan Banks focuses on making sure the banks are properly pricing the funding they offer. The Federal Housing Finance Agency said the banks have introduced a diverse array of advance products to meet the changing needs of their members over the years. In a recent advisory bulletin, the regulator directs the banks to be certain that the cost to issue debt, plus administrative and operating costs, does not surpass the minimum ...

Fannie Mae and Freddie Mac have the Treasury Department’s support when it comes to appraisal waivers, according to a newly published report this week from the Treasury on nonbank financials, fintech and innovation. A portion of the report focused on updating activity-specific regulations under the realm of lending and servicing. Treasury explained that it supports the GSEs’ efforts to implement standardized appraisal reporting, their adoption of proprietary electronic portals to submit appraisal forms and the GSEs’ limited adoption of appraisal waivers. The report acknowledged concerns from the appraisal industry but touted the benefits of using the waivers. “While Treasury acknowledges that

The Federal Home Loan Bank System saw a 13 percent yearly increase in earnings during the second quarter of 2018. The FHLBank’s Office of Finance reported that net income was $971 million for the quarter, up from $858 million in the first quarter. And for the entire first half of the year net income totaled $1.829 billion, an increase of 10 percent from a year earlier. The OF attributes the upswing to an increase in net interest income that was partially offset by lower non-interest income. [Includes one data chart.]

If nonbanks and real estate investment trusts eventually gain access to the Federal Home Loan Bank system – and the discount borrowing window – they can credit the FHLBank of Chicago, which continues to push the membership issue in Congress.

Efforts in the Senate and House to reverse the Federal Housing Finance Agency’s rule that ended captive insurer membership in the Federal Home Loan Banks is getting pushback from a handful of FHLBanks. Six FHLBank presidents wrote lawmakers to express their strong opposition to reversing the final rule on FHLB membership issued in January 2016. They included the FHLBanks of Des Moines, New York, Pittsburgh, Topeka, Boston and Dallas. Among them, they serve financial institutions in 33 states. Despite receiving hundreds of comments against the proposed rule, the FHFA implemented the ban because it was concerned about the growing number of captive insurers gaining FHLBank membership access to take advantage of cheaper financing.

A proposed rule that was touted to give Federal Home Loan Banks more flexibility in allocating their affordable housing funds is catching heat from many industry stakeholders. In fact, many deemed the proposed rule, issued on March 14, too complex to digest during the initial 60-day comment period and asked for an extension. One of the groups, the National Association of Home Builders, said, “The complexity and magnitude of the revision make the 60-day comment period an extremely difficult timeframe in which to assess and respond to the proposal.”The comment period was extended by 30 days and closed last week. There were 404 comments in all and more than 100 came in on June 12, the last day to offer input.