The Federal Housing Finance Agency is expected to decide in the not-so-distant future whether to proceed with finalizing a rule that would restrict membership in the Federal Home Loan Bank system. It would do so by unilaterally changing the long-standing meaning of the term "insurance company" to exclude captive insurance companies, including mortgage real estate investment trusts, or mortgage REITS.

The stated rationale for the FHFA's proposal is that captive insurers are not proper members of system. However, this is not only legally specious, it ignores more than 83 years of interpretation and broad-based membership policies that have made the FHLB a critical part of our housing finance market. Furthermore, this position fails to take into account that many existing FHLB members could be kicked out and forced to face restrictions on financing agreements already in place. The change would also dismiss the desire of well-capitalized, potential members, deeply interested in joining the system.

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