The 11 federal home loan banks are questioning an effort to ramp up the amount of money they contribute annually in grants for affordable housing, saying the increase could threaten the ability of banks to carry out their core mission.
Instead of raising the banks’ commitment to the Affordable Housing Program from 10% to 20% of net income, the banks said in a pair of letters to the U.S. Treasury that regulators should make it easier for bank members to access the grants. The program yielded $725 million in 2023 for multifamily housing development and individual homeowners and borrowers, according to the Council of Federal Home Loan Banks, a trade association that serves as the banks’ public voice.
“We are opposed to any approach that could weaken our capital position, as this would ultimately diminish our ability to fulfill our statutory mandate of providing liquidity to the financial system and supporting housing finance and community development,” according to a letter Aug. 29 by the 11 board chairs.
The banks were responding in part to recent statements by Treasury Secretary Janet Yellen and a report by the banks’ regulator, the Federal Housing Finance Agency, proposing to at least double the grant commitment. Yellen acknowledged the banks had voluntarily started setting aside 15% of net income for the housing program last year, but said they should aim to reach 20%. The banks are required by law to meet the 10% threshold.
With a national shortage estimated at between 1.5 million and 7 million homes, average mortgage rates stuck above 6% and sales prices at all-time highs, affordable housing has gained the attention of elected and appointed officials.
“In this time of crisis, we must all do more to support housing investment,” Yellen said. “If this level of commitment had been in place over the past five years, the FHLBs would have contributed nearly $2 billion more to housing programs than was required by law.”
Lack of Funds
U.S Sen. Catherine Cortez Masto, a Nevada Democrat, introduced legislation in 2021 to require the banks to meet the 20% standard but the bill did not progress to a vote.
The senator said the Affordable Housing Program has been successful but lacks enough funding to meet demand. In an Aug. 6 statement with six other senators, Masto said not all of the 11 banks had met the 15% commitment, and noted that the banks “paid millions to executives and board members” over the past year.
The home loan banks, like Fannie Mae and Freddie Mac, are government-sponsored enterprises that have a dual role of making the housing market more efficient while also contributing to affordable housing development. Members, which include commercial banks and other financial entities, pledge their home mortgages or securities to the federal banks as collateral in exchange for loans.
The Affordable Housing Program, created in 1989, and other home loan bank programs have contributed $8.3 billion since then for housing and community development, according to a letter the 11 bank presidents sent to the Treasury. The money supports homeownership for households with incomes at or below 80% of an area's median income, or for rental housing in which at least 20% of units are for households at or below 50% of an area's median income.
The letter from the 11 bank presidents said reforming housing grant rules would make it easier for smaller member banks to access the funding. The letter also calls for removing regulatory barriers for community development financial institutions that have been eligible for membership since 2008, and to ease access to the banks’ Community Investment Program, a source of $4.2 billion in housing loans last year.