The Federal Home Loan Banks

1
The Federal Home Loan Banks

• FHL Bank information can be directly found on
  their website http//www.fhlbanks.com.
• Our text discusses the FHLB briefly on page 377
  Chapter 13, Section 3. The text connects it to
  savings and loans having access to the national
  capital market through the FHLB.
• Our research elaborates from the text by
  investigating the history, programs and
  procedures and positive influence the FHL Banks
  have had in the US.

2
Why the FHL Banks?

• We chose to investigate the Federal Home Loan
  Banks because it has positive morale.
• Out of other financial institutions the FHL Banks
  stand out.
• FHL Banks work with local credit unions and local
  financial institutions to bridge the gap between
  capital markets and local lenders.

3
The Federal Home Loan Banking System (FHLBank)

• In the Early 1930s residential real estate
  values fell dramatically
• The federal government responded by creating
  financial institutions to promote
• Long term
• Fixed Rate
• Fully amortized Residential Mortgages
• The first of these new institutions was the
  Federal Home Loan Banking System, which was
  created in 1932 as a collection of cooperatively
  owned wholesale banks.

4
Structure, Activities and Risks

• The FHLB system has twelve regional wholesale
  banks.
• Each Bank is a separate and legal entity,
  cooperatively owned and has its own management
  employees and board of directors.
• Each bank is given a specific geographical area,
  where is tries to attract members through credit
  and investment products and payment and custody
  services.

5
FHLB Holdings of Mortgages as of March 2006
6
FHLB Risks

• FHLBs face little credit risk in their asset
  portfolios.
• The asset portfolios are largely funded by debt,
  most in the form of consolidated obligations
  for which all 12 banks are jointly liable.
• As of March 31, 2006 the FHLB System had 918.2
  billion in consolidated earnings outstanding.
• 17.1 were discount notes (maturities up to 1yr)
• 82.9 were bonds (maturities between 1-10 yr)

7
Federal Home Loan Banks

• How they lend money
• How they raise money
• Help communities
• Unique
• A cooperative

8
Current FHL Bank Programs

• Largest private sector program for housing in the
  nation
• 10 net profit are dedicated to AHP
• AHP provided 286 million in funding
• Bridge between capital markets and local lenders

9
Current FHL Bank Programs

• Operate through local financial institutions
• Do not compete with private sector lenders
• Operates as independent regional entities

10
Population Survey 1993-1999
11
Statistics from the Housing Industry

• The chart above shows that despite recent gains,
  minority and low income homeownership rates lag.
• Ratio between White and Minority homeownership is
  about the same level as it was 40 year ago.

12
Statistics

• Minorities accounted for 20 of all households in
  2000 and will account for two-thirds of household
  growth for the current decade
• Minorities comprised 12 of all homebuyers from
  1988 to 1991
• 10 years later, Minorities comprised of 20
  homebuyers for the period of 1998 to 2001

13
Statistic

• 16 between 1988 to 1991 and 20 for 1998 to
  2001, mostly Hispanics and Asians
• 20 foreign-born first time homebuyers

14
Housing Gaps

• Total U.S. homeownership rate 66.2
• Rates for White Homeowners 73.8
• Rates for Black Homeowners 46.3
• Rate for Hispanic Homeowners 46.3
• Rate for Asians and others 52
• Source LISC Center for
  Homeownership

15
Minorities will account for 80 of the total
population increase in the first decade of this
centurySource U.S. Census Bureau
16
Barriers

• Factors create barriers for minorities
• Tends to vary significantly depending on the
  region of the country, the racial group, national
  origins, etc.

17
Issues

• Education and counseling
• Stock of affordable housing
• Down payment and closing costs
• financing

18
Programs and Eligibility

• The Federal Home Loan Banks offer numerous
  programs for many different people in very
  different situations.
• The AHP, as mentioned before, and the CIP are
  good examples of such programs.
• Both have specific eligibility requirements which
  must be met in order to be qualified for the
  program assistance.

19
Program

• Affordable Housing Program (AHP)
• Competitive Program with two grants a year
• Partnership developed between member banks,
  developers, and local organizations
• Usage
• Lower interest rates on loans
• Cover down payment and closing costs
• Can be used with various programs and other
  funds
• Overlooked by 15-Member Advisory Council

20
Eligibility

• Used for families or individuals with incomes at
  or below 80 of the area median
• AHP 20 of the units must serve households at
  or below 50 of median
• Funding only given to members of the FHLBank
  System working with community sponsor organization

21
Program

• Community Investment Program (CIP)
• Provides below-market-rate loans allows for
  long-term financing for housing and economic
  development
• Benefits low and moderate income families
• Focus for economic development since it supports
  and creates jobs
• Beneficial in rural areas were there is limited
  resources

22
Eligibility

• Loans help families that earn up to 115 of the
  are median
• Rental housing- must have at least 51 of units
  occupied by families at or below 115 of area
  median
• Supports business and commercial projects that
  benefit households
• Earns up to 100 of median income urban areas
• Earns up to 115 of median income rural areas
• Funding made through a noncompetitive application
  process

23
Real Life StoriesCIP (Community Investment
Program)

• Bishop Jerry Macklin was able to get a loan
  through the CIP advance for permanent financing
  and rehabilitation
• The CIP credits funds for low and moderate income
  households to finance first time homebuyer
  programs.
• This creates opportunities for people like Bishop
  Macklin to create and maintain affordable housing
  and to support other community economic
  development activities.
• Bishop Macklin bought and renovated Faith Manor
  Apartments in a neighborhood that was once
  corrupt by drugs and violence.
• Faith Manor apartments is part of a larger effort
  to provide safe, affordable housing, community
  development and a sense of pride in the
  neighborhood.

24
The FHLB WISH Program(Workforce Initiative
Subsidies for Homeownership)

• When the Waltz-Smith family was outbid by
  100,000 on their dream home they thought they
  could never afford to live near Oakland where
  both parents worked and would be forced to
  commute 120 miles round trip to get to work.
• Thats where the Federal Home Loan Bank of San
  Franciscos Workforce Initiative Subsidy for
  Homeownership (WISH) Program came into play. The
  couple heard about WISH through Gateway Bank and
  First Home, Inc.
• The Walz-Smiths met all the requirements, and the
  15,000 WISH grant was the final piece of the
  puzzle. Its been good, says Maria of their
  time in their new home. Were very fortunate.

25
Which of the following describes the FHL Banks?

• Face little credit risk in their asset
  portfolios.
• There are twelve wholesale banks in the FHL
  Banks.
• Offers programs including CIP and AHP to those
  who qualify.
• Operate through local financial institutions
• All of the Above

26
Sources

• From the home website
• http//www.fhlbanks.com/html/programs.html
• Reviewed October 19th ,2003
• Esty, Benjanmin C. 1997. Organizational form and
  risk taking in the savings and loan industry.
  Journal of Financial Economics 44, 125-55
• Green, Richard K., and Susan M. Watcher. 2005.
  The American Mortgage in historical and
  international context. Journal of Economic
  Perspectives 19, 376-110.
• http//www.freddiemac.com/news/board_FHLBreport
• Reviewed September 29th, 2006
• http//www.johntuccillo.com
• The Impact of Advances on Federal Home Loan Bank
  Portfolio Lending (February 2005)
• Reviewed October 3rd, 2006