The Federal Housing Finance Agency is seeking to make it easier for Federal Home Loan Banks to accept certain kinds of collateral for advances.

Since 2000, some Home Loan banks have accepted "other real estate-related collateral" including commercial real estate loans, commercial mortgage backed securities and home equity lines of credit.

They also have accepted "community financial institution collateral" such as small business and small farm loans and community development loans. The FHFA said Tuesday that there is "little risk associated" with this collateral.

As a result, it is opening the door for all 11 Home Loan Banks to accept this collateral without seeking prior approval. It released a proposal Tuesday under which FHFA would simply review a bank's acceptance of the collateral through the examination process.

"Those types of collateral are no longer new, and the remaining universe of new types of collateral that might potentially fall into the ORERC category is small," the proposal said.

The FHFA is taking comments until Oct. 24.

As of yearend 2015, the Home Loan Bank System had $631 billion in total advances, according to an annual report by FHFA. The "adjusted minimum level of collateral securing advances was $756 billion, and the total collateral pledged to the FHLBanks was $2.23 trillion."

Other real estate-related collateral accounted for 13.3% of collateral, which has been "relatively constant over the last three years," the report said.

Home Loan bank members had pledged $3.3 billion of community financial institution collateral as of year-end 2015 to support $2.0 billion in advances. CFI collateral includes small-business, small-farm, small agribusiness and community development loans as well as securities representing a whole interest in such loans.

FHFA is also seeking to loosen its grip on the approval process for new business activities by proposing a materiality standard.

Under the proposal, Home Loan Banks would be required to submit a notice when they engage in new activities that "entail material risks not previously and regularly managed by the Bank." The FHFA would review the riskiness of the new activity as part of the examination process.

When it comes to newer, more risky activities, "FHFA expects a FHLB would discuss the contemplated activity with FHFA staff early in the process."

If needed, the Home Loan Bank would be required to submit a proposal for the new business activity that includes a "complete description" of the new activity along with a "thorough analysis of the legal authority for the activity."

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