The Federal Home Loan Banks would welcome housing finance reform legislation that gives them explicit authority to securitize mortgages.
But the members of the 12 regional FHLBs would be very wary of such a move if Congress required the FHLBs to provide secondary market access for nonbank lenders such as independent mortgage banks.
“I don’t think our members would support granting mortgage bankers access to the FHLBs,” says Ron Haynie, a senior vice president for the Independent Community Bankers of America.
Small mortgage banking firms want to be sure they have access to a new secondary mortgage cooperative that Senate Banking Committee members have proposed to replace the cash window currently provided by Fannie Mae and Freddie Mac. But they also want another outlet and that brings the FHLBs into the picture.
If the FHLBs become securitizers, “we would like to be limited purpose participants in that activity,” says Scott Olson, executive director of the Community Housing Lenders Association.
The ICBA would want to see how a limited purpose membership would be structured. But Haynie says most of the FHLB mortgage purchase programs require member banks, thrifts and credit unions to retain some of the credit risk. That works well with community banks that have capital. “You are talking about a very different business model when you go from a community bank to a mortgage bank,” Haynie says.
While some FHLBanks want to securitize mortgages, the American Bankers Association has taken the position that the FHLBs should continue to focus mainly on their traditional role of providing advances to depositories that hold mortgage loans in portfolio.
“Mortgage bankers are not portfolio lenders. There are other government programs for mortgage banks,” says ABA executive vice president Bob Davis.