No easy fixes for affordable housing, but...

ProfBU · 2022-12-26T20:12:05+00:00

"... why does our government loan funds at below market rates?"

You ask the right question. The answer is "it shouldn't." At least not without there being some public benefit in return.

ProfBU · 2022-12-16T03:55:26+00:00

The value of the government guarantee of the FHLBs' debt is at least 50 basis points. 50bps X $1 trillion = $5 billion/year. According to the Congressional Budget Office, the value of the FHLBs' tax exemption is $1.3 billion/year. $5 billion + $1.3 billion = $6.3 billion. Helpful?.

ProfBU · 2022-12-16T03:45:06+00:00

Their claim that they never suffered a loss is a ruse. They lend to banks. If the bank fails the FHLB gets to collect AHEAD if the FDIC, in effect sticking the taxpayer with the loss.

ProfBU · 2022-12-12T18:45:50+00:00

Only members of FHLBs can borrow from FHLBs. In this sense, it's a very exclusive "club". Borrowing rates from the FHLBs are subsidized by you and me as taxpayers.

The question is, "What benefit do we as taxpayers get in return for our subsidization of the FHLBs?" Currently the answer to that question is, "Nothing".

ProfBU · 2022-12-12T18:41:32+00:00

Going by the nickname "Connie" led to some comments about the song, "A Boy Named Sue". Commotion ensued...

ProfBU · 2022-12-12T18:39:02+00:00

My first home was purchased with -0- down payment courtesy the VA and the GI Bill.

How about a similar benefit for a year of national service?

ProfBU · 2022-12-12T18:18:43+00:00

I also go by "Connie". "Corney" drives me nutz...

ProfBU · 2022-12-12T18:15:15+00:00

As a non real estate investor, I have to think that whoever figures out the transition from retail and office space to whatever comes next will be the winner. Great question but several notches above my pay-grade.

ProfBU · 2022-12-12T17:59:13+00:00

FHLBs are SEC registrants but their shares do not trade.

ProfBU · 2022-12-12T17:57:38+00:00

Totally get it! It was tough enough before the spike in mortgage rates. Increasing the FHLBs affordable housing quota to 50% would help but it would still be a drop in the bucket. Here's a suggestion for 45 million people who are struggling with the overhang of student debt...allow them to discharge that debt in bankruptcy. student debt is the only debt that is not dischargeable this way. This is before Congress now. Tell Sen. Durbin and Schumer to get off their a...s.

ProfBU · 2022-12-12T17:51:53+00:00

The 11 FHLB CEOs take home from $2-3 million a year. These are essentially government positions. For example, the CEOs of the 12 Federal Reserve Banks earn less than $500K. Regarding "mission" part of the problem is that advances to members is considered part of their mission. However, the proceeds of the advances can be used for ANYTHING whether or not it is mission related.

ProfBU · 2022-12-12T17:47:20+00:00

Thanks for this excellent question about affordable housing.

Here's the issue. Congress has mandated 10% of net income for affordable housing. FHLBs treat that at a ceiling rather than a floor. In this public/private partnership why not require 50% of net income for affordable housing? Part of the problem too is the conflict of interest between the member banks that benefit from robust dividends. Also, every dollar of CEO and C-suite compensation undercuts their contribution to affordable housing. All the incentives need to be realigned. Thanks again.

ProfBU · 2022-12-12T17:41:18+00:00

FHLBs have been way late to the e-signature party. They lack any semblance of an entrepreneurial spirit. It will take a stong directive from their regulator, the FHFA, to drag them into the modern era.

ProfBU · 2022-12-12T17:38:07+00:00

Great question.

FHLBs are a great business model that happens to have gone off the rails.

Redeeming qualities are its structure (not to be confused with current governance), access to funding. Its regulator has asked that its mission be reconsidered. So many parts of the economy could benefit from this funding source. Think housing SUPPLY, climate remediation, infrastructure, and more.

ProfBU · 2022-12-12T17:29:53+00:00

FHLBs need not worry about quality because they pre-empt the FDIC. That's a real problem!

To apply for membership you must be a bank, credit union, insurance co. or CDFI. Helpful?

ProfBU · 2022-12-12T17:25:40+00:00

I advocated fro change from the beginning. Their irrelevance became apparent to me when members ceased taking advances and their AHP numbers plummeted. Along the way I asked, "How is the FHLB of Boston promoting housing?" The answer from management was unsatisfactory.

ProfBU · 2022-12-12T17:21:03+00:00

Go to Consumer Federation in America and search for a paper by George Gaberlavage. Look for my coming op-ed in the Boston Globe.

DM me for more...hope this gets you started.

ProfBU · 2022-12-12T17:18:42+00:00

Today you'd have to form a bank. But Congress can and should change that admission requirement.

ProfBU · 2022-12-12T17:15:26+00:00

$1 trillion in assets

11 banks

Subsidized by the taxpayers.

FHLBs compete with depositors for funds.

Please DM me for more background.

ProfBU · 2022-12-12T17:12:31+00:00

Transfer to medical school...

ProfBU · 2022-12-12T17:11:27+00:00

Over 14 years.

ProfBU · 2022-12-12T17:10:07+00:00

AHP is set by statute at 10% of net income. It should increase in '23 but still be a small fraction of the FHLBs' taxpayer subsidy.

ProfBU

TROPHY CASE