FHFB Opposes FHLB Regulatory Changes
In anticipation of the markup of H.R. 2575, Federal Housing Finance Board chairman John Korsmo sent a letter to the House Financial Services Committee opposing an amendment to move regulatory oversight of the Federal Home Loan Banks to a new housing GSE regulator under the Department of Treasury. Chairman Korsmo said such a move might weaken oversight of the FHLBanks and impair their ability to achieve their housing finance mission.
ICBA, along with 31 of its affiliated state community banking associations representing thousands of FHLBank members who share his views, applaud Chairman Korsmo and the FHFB for reaffirming their opposition to being moved to Treasury, a position earlier elaborated in testimony before the House Financial Services Committee.
In his letter, Chairman Korsmo pointed out the range of differences between the FHLBanks and Fannie Mae and Freddie Mac, including ownership structures, business models, regulatory programs and how they provide liquidity for housing finance. He also noted the growth of his agency's examination staff and other steps taken to enhance FHLBank oversight since he became chairman.
"I strongly counsel that transfer of the Federal Home Loan Bank Act authority to Treasury or a merger of housing GSE oversight agencies requires careful, detailed analysis which has not yet been conducted and which will probably reveal that continual enhancement of FHLBank supervision is best served by preserving the 70 year practice of separate and specialized regulators for the two distinct housing GSE charters, FHLBanks and Freddie Mac and Fannie Mae," wrote Chairman Korsmo.
Concern About FHLBank Dividends. Separately, Chairman Korsmo expressed concerns about FHLBanks paying out dividends while reporting losses. The FHLBank of Atlanta was the latest to announce losses for the third quarter. In a letter to members, the FHLBank said it will report a $9.1 million net loss due to mark-to-market adjustments required by SFAS 133 on interest rate derivatives. At the same time, it will pay $38.7 million in dividends. The FHLB notes that core economic income for the period was $42.9 million and it generally pays out 80% to 95% of that amount in dividends. All SFAS 133 income adjustments caused by interest rate fluctuations will be offset fully as individual derivative contracts mature, the FHLB said.
The FHLB of Pittsburgh announced previously that it expected a $7 million loss in the third quarter and expected to pay a dividend. However, the FHLBank of New York suspended its third quarter dividend after reporting a $183 million loss on the sale of securities backed by manufactured housing loans.