Should Nonbank Mortgage Companies Be Permitted to Become Federal Home Loan Bank Members?

Brief

Should Nonbank Mortgage Companies Be Permitted to Become Federal Home Loan Bank Members?

June 16, 2020

Abstract

In response to the Federal Housing Finance Agency’s (FHFA) February 24, 2020 request for input on eligibility requirements for membership into the Federal Home Loan Bank (FHLB) System, this brief articulates the benefits of expanding FHLB membership to nonbanks.  It shows there is strong alignment between the nonbank business model and the mission of the FHLBs to provide liquidity to support housing finance and community development. However, nonbanks do pose some additional risk to the safety and soundness of the FHLB system. These risks can be mitigated through a combination of prudential nonbank regulation and enhanced FHLB lending terms. This brief discusses two other issues – collateral eligibility and the perfection of interest – which must also be addressed as part of FHFA’s evaluation.

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