Ever heard of Federal Home Loan Banks? They’re government-sponsored (funded) banks that “support mortgage lending and related community investment.”
In other words, the federal government gives FHLBs money in the form of subsidies, and then that money is ostensibly used to boost the housing market.
But there’s just one problem. According to former FHLB director Cornelius Hurley, the vast majority of money going to FHLBs isn’t being used to help the market.
“In truth, the FHLBs’ subsidized advances can be and are used for anything the members wish to use the funds for. This was confirmed by the Government Accountability Office many years ago when it found: ‘Another challenge facing the system is that there is limited empirical information on the extent to which FHLBank advances and other services benefit housing and community finance,'” Hurley wrote for The Hill.
“You’ve probably asked, ‘How can banks get away with paying on average 0.19 percent on savings accounts when the yield on 1-year treasuries is 4.75 percent?’ The answer lies largely with the FHLBs.” https://t.co/AVcOw9pFf2
— José Rodríguez-Suárez (@JRSwrites) November 26, 2022
“By statute, the FHLBs are required to set aside a small portion of their earnings for this purpose,” Hurley further notes.
But even then, FHLBs are still failing to meet expectations, with only 5 percent of their annual $6.3 billion subsidy going towards affordable housing.
“What it says is that for every $20 of taxpayer support for the FHLBs, only $1 is set aside for affordable housing. The other $19 goes directly to the FHLBs and indirectly to the FHLBs’ members. It is worth noting here that each of the CEOs of the 11 FHLBs receives million-dollar pay packages. This is for distributing a government benefit to their members,” Hurley continues.
Hurley refers to FHLBs’ behavior with the term homewashing. It’s a derivative of the term greenwashing, which refers to when companies deceive customers into believing that their products are environmentally friendly. In this case, he argues that FHLBs are deceiving taxpayers into believing they’re doing something/anything to help the housing market.
But it gets worse, Hurley warns.
“Banks that take advances from their FHLBs, that is most banks, do so in lieu of paying higher interest rates to their own customers. You’ve probably asked, ‘How can banks get away with paying on average 0.19 percent on savings accounts when the yield on 1-year treasuries is 4.75 percent?’ The answer lies largely with the FHLBs,” he explains.
“In sum, taxpayers’ dollars support the FHLBs in exchange for which the taxpayers receive little to no benefit. Meanwhile, the FHLBs suppress the taxpayers’ returns on their bank accounts thus enhancing bank profits. Bankers think this is a fine arrangement and it should be left alone. ‘Don’t mess with success,’ the American Bankers Association has warned the public,” he continues.
The good news is that people are waking up.
“Luckily, the scales are falling from the eyes of taxpayers, banks, savers, housing advocates and, most importantly, the FHLBs’ regulator, the Federal Housing Finance Agency. Its launch of a centennial review of the FHLBs, dubbed ‘FHLBanks at 100: Focusing on the Future,’ sends a clear message that the housing myth can no longer be used as a cover for this elaborate corporate welfare scheme,” Hurley writes.
FHFA has extended the deadline to submit comments on “FHLBank System at 100: Focusing on the Future” until October 31. Learn more about this initiative, submit comments, or view the recently held public listening sessions: https://t.co/WIjD6QrkCI pic.twitter.com/Ym0Fk6lBbr
— FHFA (@FHFA) October 19, 2022
The review was announced earlier this week.
“As the FHLBanks approach their centennial, the Federal Housing Finance Agency will conduct a comprehensive review to ensure they remain positioned to meet the needs of today and tomorrow,” the Federal Housing Finance Agency announced Tuesday.
“As part of the review process, FHFA will host two public listening sessions and a series of regional roundtable discussions to consider and evaluate the mission, membership eligibility requirements, and operational efficiencies of the FHLBanks,” the announcement continued.
FHLBs have for years been mired in controversy. Three years ago, two former senior executives with the Federal Home Loan Bank of Dallas, former president Terence Carlyle Smith and former CIO Nancy B. Parker, were sentenced to prison time for defrauding the bank.
“The executives made more than 30 trips between 2008 and 2013 and expensed about $780,000 in what they claimed were expenses for conferences. … In reality, authorities say, the two did not attend the conferences and the trips were personal. They featured ‘first class airfare, limousine services, concerts, vineyard tours, luxury hotel rooms, lavish meals, and expensive liquor and wine,’ the AG’s office said,” according to American Banker magazine.
In total, the former FHLB execs reportedly racked up nearly a million dollars in travel expenses and half a million in unused vacation benefits.
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