CUNA Regulatory Comment Call
June 3, 2009
Proposed Revisions to Federal Home Loan Bank Membership to Include Non-Federally Insured CDFI Credit Unions
- The Federal Housing Finance Agency (FHFA) has issued a proposal that will extend membership in Federal Home Loan Banks (FHLBs) to qualified Community Development Financial Institutions (CDFI) that are not federally insured. These are specific changes to implement provisions of the Federal Home Loan Bank Act (FHLB Act), which was amended by Section 1206 of the Housing and Economic Recovery Act of 2008 (HERA).
- FHLBs are cooperative institutions owned by their members and provide low-cost financing for financial institutions for the making of various types of loans. Under the FHLB Act, each member of an FHLB must be either a building and loan association, cooperative bank, homestead association, insurance company, savings bank, or federally insured credit union. HERA expanded these requirements so that non-federally insured CDFIs could become members of an FHLB if they met certain criteria, listed below.
- Institutions now allowed to become members of an FHLB must qualify for certification by the CDFI Fund under the Community Development Banking and Financial Institutions Act of 1994 (CDFI Act). Such institutions include loan funds, venture capital funds and state-chartered credit unions without federal deposit Insurance. These institutions must meet current membership criteria, such as buying FHLB stock and pledging collateral.
- In addition to the criteria listed above, a non-federally insured CDFI seeking FHLB membership must also
demonstrate that it:
- Is duly organized under a state or federal law;
- Is either subject to inspection and regulation or certified as a CDFI under the CDFI Act;
- Makes long-term mortgage loans;
- Has at least 10 percent of their total assets in residential mortgage loans;
- Is in sound financial condition;
- Has sound character of management; and
- Has a sound home-financing policy
- Comments on the proposed rule are due by July 14, 2009. Please submit comments to CUNA by July 6, 2009.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at firstname.lastname@example.org and to Senior Assistant General Counsel Jeff Bloch at email@example.com; or mail them to Mary and Jeff in c/o CUNAs Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rules. You may also access a copy of the rules here.
QUESTIONS TO CONSIDER REGARDING THE FEDERAL HOUSING
FINANCE AGENCY PROPOSAL
(The FHFA has specifically requested comment on the issues
raised in these questions.)
- The proposed rule provides definitions specific to CDFIs in order for an FHLB to evaluate their creditworthiness. The
proposed definitions include: appropriate regulator, CDFI fund, gross revenues, operating expenses, restricted assets,
total assets, and unrestricted cash equivalents. The FHFA requests comments on the appropriateness of these proposed
- The proposed rule would apply the same financial condition requirements to CDFI credit unions as are currently applied to
state-chartered credit unions insured by the NCUA. Because CDFI credit unions do not file financial regulatory reports with a
federal regulator, the proposed rule requires CDFI credit unions to submit their regular reports prepared for their state regulator
to the FHLB to which they are applying. However, because the reports that CDFI credit unions are required to file with their state
regulators may not in all cases be substantially similar to reports submitted to the NCUA, the FHFA seeks comments on what other
documentation CDFI credit unions could supply to FHLBs in order to ensure their stable financial condition. Additionally, FHFA
seeks input on what type of regular reports concerning financial conditions that CDFI credit unions already submit to state
- The proposed rule would require the CDFI applicant to have a ratio of net assets to total assets of at least 20 percent. Net
assets are calculated as the residual value of assets, including restricted assets, over liabilities. FHFA requests comment on
the inclusion of restricted assets in the net asset ratio, and of the proposed 20 percent net asset ratio minimum requirement for
FHLB membership eligibility.
- A CDFI applicant is required, under the proposed rule, to show that it has generated positive net income over two of the
most recent three years. Net income is defined as gross revenues less total expenses. The current requirement for federally
insured institutions is to demonstrate that they have generated positive income for at least four of the six most recent quarters.
However, as many CDFIs may not file quarterly earnings reports, the FHFA proposes the yearly standard as a substitute. The FHFA
seeks comment on the appropriateness of this earnings measure as an equivalent minimum eligibility standard.
- The proposed rule requires that a CDFI applicants ratio of loan loss reserves to loans and leases 90 or more days delinquent
be at least 30 percent. The 30 percent requirement is half of what most depository institutions must maintain, a reflection of
the historically lower delinquency rate for CDFI-originated loans. FHFA seeks comment on the proposed lower loan-loss reserve
ratio, especially given current housing market conditions.
- The proposed rule would also require a CDFI credit union applying for FHLB membership to maintain a 1.0 operational liquidity
ratio for the year of the application, as well as for one of the two preceding years. FHFA seeks comments on the proposed
liquidity ratio requirement.
- FHFA seeks input as to whether it should impose a self-sufficiency ratio requirement for CDFI applicants and, if so, what
that ratio should be.
- FHFA has not included bank holding companies that are certified as CDFIs in its proposed rule because those companies should,
by definition, be federally insured and thus already subject to FHFA application requirements. Nonetheless, FHFA seeks comments
regarding whether it should include additional provisions relating to bank holding companies in its final rule.
- The proposed rule would require all applicants to demonstrate that they have not, since the time of their last regulatory
examination report, been the subject of any enforcement actions, criminal, civil or administrative proceedings. FHFA seeks
input regarding any additional means by which an FHLB can evaluate the character of an applicants management.
- Because CDFIs are not subject to the Community Reinvestment Act, the proposed rule lays out a number of activities
which might indicate that the institution meets the first-time homebuyer lending standard. The list includes: having an
established record of lending to first-time homebuyers, providing homeownership counseling programs for first-time homebuyers,
providing or participating in marketing plans and related outreach programs targeted to first-time homebuyers, and providing
technical assistance or financial support to organizations that assist first-time homebuyers. FHFA seeks comments on whether
it is appropriate to apply these standards to CDFIs or whether it should instead seek to impose a set of alternative community
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Luke Martone Senior Regulatory Counsel (202) 508-6743 email@example.com