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New Bill Introduced To Restore FHLB Membership for Captive Insurers

Legislation Introduced-SF
February 13, 2018

On January 12, 2016, the Federal Housing Finance Agency (FHFA) adopted a final rule restricting Federal Home Loan Bank (FHLB) membership eligibility. The final rule defined "insurance company" to exclude captive insurers, therefore`prohibiting membership through a captive insurer. The rule allowed FHLB captive insurer members that joined prior to the FHFA's proposed rule up to 5 years to terminate their membership and those that joined after issuance of the proposed rule up to one year to terminate.

In June of the following year, US Representatives Randy Hultgren (R-IL-14) and Gwen Moore (D-WI-04) introduced H.R. 2890, the Housing Opportunity Mortgage Expansion (HOME) Act, which would restore the membership of captive lenders in the FHLB if they joined before the FHFA proposed its membership rule and if they could demonstrate a commitment to residential mortgage activities.

In late January 2018, US Senators Tammy Duckworth (D-IL), Ron Johnson (R-WI), and Tim Scott (R-SC)  introduced S. 2361, the Housing Opportunity Mortgage Expansion (HOME) Act, which amends the Federal Home Loan Bank Act to restore membership for those captive insurance subsidiaries that were removed from the FHLB system in February 2017 and seeks to continue membership for remaining captive insurers that are scheduled to be forced to exit the system by February 2021. According to a press report from Senator Duckworth's website, the legislation would make FHLB membership more inclusive, create more liquidity for small business lending, and increase resources for affordable housing.

The press statement also asserts that the FHFA rule has a particularly devastating impact on the FHLB-Chicago, which serves Americans in Illinois and Wisconsin, because its long-standing captive insurer members provide the bank with nearly one-third of its total borrowings.

David H. Stevens, president and CEO of the Mortgage Bankers Association, said, "Captive insurers whose housing focus is aligned with that of the FHLB system act as a stabilizing force in the housing finance market and create a reliable source of capital for lenders and investors. This bill represents an important step forward in recognizing the need for multiple forms of private capital as Congress considers the future of housing finance." 

"The participation of larger financial institution members in the FHLBs enhances the value to members of all sizes, particularly smaller member banks and thrifts, which often have limited or no direct access to the capital markets other than through their FHLB," said David Shroeder, senior vice president of federal government relations of the Community Bankers Association of Illinois.

Read the full text of S. 2361.

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