Transition to Phase III

At last, the transition to what can be done and done better – even good.  Plus, I’ve been implored to stop talking about retained earnings, so I will.

But one last recap –

  • The FHLBanks overstate their case in defending the status quo
  • The FHLBanks have a lot of resources to contribute more
  • All in all, I’m an advocate for more of the same, but with a more equitable distribution of the profits earned (this has been my focus throughout as seen here).

To me the strength of the system is the interaction between the FHLBs, their members and the housing associates.  That ecosystem has the wherewithal to significantly impact affordable housing and community development.

Currently, the Banks two main products, advances (loans to members) and the Acquired Member Asset (AMA) programs (MPF and MPP) serve a purpose and create a dynamic business model, but do they help solve affordable housing and community development needs?

Advances, even when priced as attractively as I’ve noted, do not abet active portfolio mortgage lending for members – there is simply not enough spread earned.  And, with the impact of conservative haircuts on collateral used to secure the advances, the business proposition loses still more luster.

Similarly, for the AMA programs, where the FHLBs purchase mortgage loans from members at competitive prices, the limitation that loans must conform to market underwriting conventions limits their ability to meaningfully impact the housing market.

So, should efforts be spent on fine-tuning the FHLBs main products or is a more significant rethinking required?

That’s it for now – I’ll be back next Tuesday.     

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