Despite some commendable improvements in its monitoring of the 12 Federal Home Loan Banks, the Federal Housing Finance Agencys failure to establish policies, systems and documentation standards threatens to undermine the FHFAs oversight of troubled FHLBanks, according to a new report by the FHFAs overseer.The FHFA Office of Inspector Generals first report of 2012 picks right up where it left off last year in the OIGs persistent criticism of the FHFAs oversight of the GSEs.Since 2008, four FHLBanks Boston, Chicago, Pittsburgh and Seattle have faced significant financial and operational difficulties, primarily due to their investments in high-risk mortgage-backed securities. In 2009 and 2010, the four Banks posted losses of nearly $2.0 billion on non-agency MBS investments, the FHFA-OIG noted.
The Federal Housing Finance Agency has issued a final rule making a number of minor but important tweaks to its mortgage reporting requirements. The changes make way for data reporting of housing goals for the 12 Federal Home Loan Banks.On Dec. 21, the Finance Agency published in the Federal Register new reporting requirements governing FHLBank housing goals to make those requirements consistent with other data reporting requirements currently applicable to the Banks.The FHFAs final rule is in keeping with the Housing and Economic Recovery Act of 2008 which amended the Federal Home Loan Bank Act by requiring the director to establish housing goals with respect to the FHLBanks purchase of mortgages.
The Federal Home Loan Banks continue to show an investment preference for Fannie Mae and Freddie Mac mortgage-backed securities during the third quarter of 2011, posting a modest increase from the previous quarter, according to a new analysis by Inside The GSEs based on data from the Federal Housing Finance Agency.Ginnie Mae securities, meanwhile, remained popular within the FHLBank system during the three-month period ending Sept. 30, 2011.GSE MBS accounted for 68.9 percent of combined FHLBank MBS portfolios, up 1.7 percent from the second quarter of 2011. The Finance Agencys data do not separately break out Fannie and Freddie volume or share.
The use of Federal Home Loan Bank advances among bank and thrift members fell overall during the third quarter of 2011. Two of the three top members show a drop-off larger than the overall industrys year-over-year rate of decline, according to the Inside Mortgage Finance Bank Mortgage Database.All of the nations bank and thrifts reported using a combined $323.3 billion in advances as of Sept. 30, 2011, down 5.2 percent from the second quarter and off 19.7 percent from the same period a year earlier.The Federal Home Loan Banks Office of Finance in its third quarter combined finance report cited decreased member demand, regular maturities and continuing prepayments for the third quarter decline.
The Federal Home Loan Banks of Seattle and New York recently announced personnel changes in the executive ranks of both Banks.The Seattle Banks Board of Directors last week appointed Michael Wilson as its new president and CEO, replacing acting president and CEO Steven Horton, who himself replaced Richard Riccobono in October 2010. Wilson, currently executive vice president and chief business officer of the FHLBank of Des Moines, brings 17 years of experience in the FHLBank system, serving in various Bank posts. He will join the Seattle Bank effective Jan. 30, 2012.
The Federal Housing Finance Agency issued a final rule last week which clears the way for the Federal Home Loan Banks to voluntarily merge, but it remains to be seen whether any of the 12 FHLBanks desire consolidation.The final rule, published in the Nov. 28 Federal Register, is largely similar to the proposal the FHFA issued one year ago following a number of minor revisions to address concerns raised by commenters.
Debt issuance for Fannie Mae, Freddie Mac and the Federal Home Loan Banks all recorded increases in new debt issuance during the third quarter of 2011.The three GSEs collectively issued $797.7 billion in new debt issue during the third quarter, a 9.8 percent increase from the previous quarter, while GSE debt outstanding at $2.152 trillion declined 4.8 percent from the second quarter.
The Federal Housing Finance Agency earlier this month issued a proposed rule to require the Federal Home Loan Banks to monitor and assess the eligibility of each Bank member for access to long-term advances through compliance with the Community Reinvestment Act and the members first-time homebuyer standards.To maintain access to FHLBank long-term credit and community investment products, Bank members are required to submit a community support statement to the FHFA every two years to document their CRA performance and record of lending to first-time homebuyers.
A reduction to the Federal Home Loan Bank systems advance business and investment portfolio would diminish Bank profitability, resulting in a credit negative for U.S. commercial banks, according to a recent report by Moodys Investors Service. Limiting access to FHLBank funding would reduce alternative liquidity for U.S. banks, noted the Moodys report A Diminished Federal Home Loan Bank System Would Weaken U.S. Banks.
The Federal Home Loan Bank Office of Finance announced that preliminary combined net income for the FHLBanks rose 86.9 percent to $469 million for the three-month period that ended Sept. 30, 2011. That was down from $732 million at the end of the third quarter 2010.For the first nine months of the year, the FHLBanks earned $1.08 billion, $305 million less than the Banks earned during the same time last year. The Office of Finance attributed the changes to lower net interest income, partially offset by other non-interest losses and lower assessments.