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From Banking and Finance Law Daily, October 26, 2015

Luetkemeyer bill would withdraw proposal to amend FHLBank membership requirement

By Stephanie K. Mann, J.D.

Rep. Blaine Luetkemeyer (R-Mo) has introduced legislation to require the withdrawal and study of the Federal Housing Finance Agency’s proposed rule on Federal Home Loan Bank membership. If enacted, the bill, H.R. 3808, would require the FHFA’s proposed rule to be withdrawn within 30 days.

Proposal. The FHFA proposed rule would:

  • Establish a new quantitative test requiring all members to hold 1 percent of their assets in home mortgage loans (HML) and to do so on an ongoing basis. Currently, applicants for membership need only demonstrate a nominal amount of HML on their balance sheet at the time of their application, but not thereafter.
  • Require certain members that are subject to the 10-percent residential mortgage loans (RML) requirement to adhere to this requirement on an ongoing basis. Currently, these members are subject to the 10-percent RML requirement only when they initially apply for membership in a Bank, but not thereafter.
  • Define “insurance company” to mean a company that has as its primary business the underwriting of insurance for nonaffiliated persons. This would continue to include traditional insurance companies but would effectively exclude captive insurers from membership and prevent entities not eligible for membership from gaining access to FHLBank advances through a captive insurer. Membership of existing captive insurers would “sunset” over five years with defined limits on advances.
  • Clarify the standards by which an insurance company’s “principal place of business” is to be identified in determining the appropriate FHLBank district for membership (see Sept. 3, 2014, issue of Banking and Finance Law Daily).

Study. H.R. 3808 would require the Comptroller General to conduct a study on the impact that the covered proposed rule would have on:

  • the ability of the FHLBanks to fulfill the mandate to provide liquidity to support housing finance and economic and community development;
  • the safety and soundness of the FHLB System;
  • the liquidity needs of financial intermediaries;
  • the stability of the FHLB System;
  • the benefits of a diverse membership base for FHLBs; and
  • the ability of member institutions to rely on access to FHLB advances.

The comptroller would be required to consider the comment letters submitted in response to the notice of proposed rulemaking for the covered proposed rule; the legislative and administrative history of the FHLB membership rules; the burden placed on community financial institutions and community development financial institutions; and the legal authority of the FHFA to exclude from membership any class or category of insurance companies.

A report on the comptroller’s findings must be published within one year after enactment.

MBA support. David H. Stevens, President and CEO of the Mortgage Bankers Association, issued a statement applauding the bill’s introduction. "The Federal Home Loan Bank System is a critical part of our housing infrastructure, providing its members with a strong, reliable source of capital to serve the housing needs of their communities. This legislation would preserve today's membership and prevent costly disruption by ensuring community banks and captive insurers remain members of their regional Home Loan Bank.”

Companies: Mortgage Bankers Association

MainStory: TopStory BankingOperations CommunityDevelopment FederalReserveSystem FinancialStability Loans Mortgages OversightInvestigations

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