Following pressure from industry trade groups, including the Mortgage Bankers Association (MBA), the Federal Housing Finance Agency (FHFA) has extended the comment period for its proposed rule on Federal Home Loan Bank (FHLB) membership by 60 days.
The comment period was previously set to close on Nov. 12; however, it will now close on Jan. 12, 2015.
In a release, the FHFA says it is extending the comment period ‘in light of the importance of the issues addressed in the proposed rule, the high level of interest in the proposal and requests from multiple stakeholders for more time to evaluate the proposed rule.’
Last month, the MBA asked the FHFA to extend the deadline so that the MBA would have more time to form a working group that will analyze the proposal in greater detail and develop a response.
One of the main concerns with the rule change is that it could have the effect of precluding real estate investment trusts (REITs) from getting membership in the FHLBs.
Among the set of changes, the FHFA is proposing to establish a new quantitative test requiring all FHLB members to hold 1% of their assets in home mortgage loans (HML) 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.
In addition, the FHFA proposes to require certain members that are subject to the 10% residential mortgage loans (RML) requirement to adhere to this rule on an ongoing basis. Currently, these members are subject to the 10% RML requirement only when they initially apply for membership.
The biggest proposed change, however, is redefining the term ‘insurance company’ to mean a company that underwrites insurance for nonaffiliated persons as its primary business. This would allow traditional insurance companies to continue to do business with the FHLBs, but would effectively exclude captive insurers from membership. Further, it would prevent entities that are not eligible for membership from gaining access to FHLB advances through a captive insurer.
The problem is that, currently, many of the REITs that apply for and maintain membership in the FHLBs use captive insurance companies to gain access to low-cost funding through the FHLB system.
In a recent letter to the FHFA, David Stevens, president and CEO of the MBA, explained that the regular 90-day comment period wasn't enough time for industry stakeholders to analyze the rule changes and come up with alternatives.
‘The [FHLB] system plays a critical role in providing liquidity to the housing finance system, and the proposal raises significant business, legal and policy issues that must be reviewed carefully,’ Stevens wrote in his letter to the FHFA.