New Report On Federal Home Loan Banks Released

A new federal report FHLBank System at 100: Focusing on the Future assessing the Federal Home Loan Bank (FHLB) system will help the public and policymakers achieve effective reforms to improve the FHLBs’ future performance. The Federal Home Loan Bank System has been a key component of the nation’s housing finance system since it was created over 90 years ago. Today, the Federal Home Loan Banks (FHLBanks) connect domestic financial institutions - many of which are small, community focused lenders - to the global capital markets. Those connections make it possible for lenders to better support housing and community development. 

The Report recommends that: (1) The role of the FHLBanks in providing secured advances must be distinguished from the Federal Reserve’s financing facilities, set up to provide emergency financing for financial institutions with immediate liquidity challenges. The FHLBank System does not have the functional capacity to serve as the lender of last resort for troubled members. (2) FHLBanks should coordinate with their members’ primary regulators and the Federal Reserve Banks to make sure their members’ borrowing needs continue to be met when they no longer satisfy the FHLBanks’ credit criteria. (3) FHLBanks also should regularly update their credit evaluations of their members to avoid encouraging excessive risk taking. 

Additional steps that will better enable the FHLBanks to perform their liquidity function include: (i) improving the ability of the FHLBanks to maintain interest-bearing deposits with commercial banks to manage intra-day liquidity requests; (ii) limiting the potential for an increase in debt issuance costs for all members following a large liquidity request from a single member; and (iii) strengthening capital management and stress testing to keep the FHLBanks able to serve their members through all economic environments.

FHFA seeks to help the Federal Home Loan Bank System continue being a source of stable and reliable liquidity, while increasing support for housing and community development. The report summarizes issues raised throughout the initiative, actions FHFA will take, and recommendations, some of which are for consideration by Congress. 

FHFA will further review these issues and do the recommendations through ongoing supervision, guidance, or rulemaking. Much of this work will involve additional collaboration and communication with stakeholders. Certain recommendations require statutory changes, which in turn require coordination with, and support from, Congress.

The new report was produced with input from stakeholders including NCRC. FHFA started its review of the FHLBs in 2022, to identify how it could modernize the FHLB system and better serve the public. NCRC has called for reforms to strengthen community-based accountability, increase affordable housing resources, and further fair housing. The recommended changes would also more effectively support Community Development Finance Institutions (CDFIs) as well as important community development investments in climate resilience and other projects. 

Read the November 8, 2023 NCRC release.

 Fair Lending News:

CFPB Releases 2022 Fair Lending Annual Report to Congress

On June 26, 2023, the Consumer Finance Protection Bureau(CFPB) released its Fair Lending Annual Report to Congress, describing its fair lending activities in enforcement and supervision; guidance and rulemaking; interagency coordination; and outreach and education for calendar year 2022.

In 2022, the CFPB’s fair lending work centered on the consumers and communities most affected by unlawful discrimination:

• Working with our federal and state partners to address redlining as well as confronting deep-seated discrimination in the home appraisal industry. 
• The CFPB also released several reports shining a light on factors that may influence fair access to credit, including how medical debt affects tens of millions of consumers’ credit profiles, how people in under-resourced rural areas struggle to access financial services, and the challenges faced by justice-involved individuals and families.
• We also issued several rules and guidance documents reaffirming the importance and applicability of fair lending protections for prospective applicants, applicants for credit, and existing account holders. Through our enforcement and examination activity, interpretive rules and advisory opinions, circulars, and other tools, we continue to make clear that fair lending must be a top priority for all financial institutions.

The Fair Lending Annual Report to Congress fulfills the CFPB’s statutory responsibility to, among other things, report annually to Congress on public enforcement actions taken by other agencies with administrative enforcement responsibilities under the Equal Credit Opportunity Act (ECOA), and assessments of the extent to which compliance with ECOA has been achieved. It also fulfills the statutory requirement that the CFPB, in consultation with HUD, report annually on the utility of the Home Mortgage Disclosure Act’s requirement that covered lenders itemize certain mortgage loan data.

Through 2023 and beyond, the CFPB will continue to stand up for those consumers and small businesses who are the least resourced to fight back against exploitation.

As noted in the Future of Fair Lending section at the end of the Report, we are focused especially on the increased use of advanced and emerging technologies in financial services. Consumers and small businesses are not well-resourced to fight back against—and may not even know they are subject to—algorithmic bias, digital surveillance and data harvesting, dark patterns, and advanced technologies that are black boxes. The CFPB has increased its expertise in data science and analytics to ensure that we can identify fair lending violations at each stage of the credit lifecycle. And we will continue to take a whole-of-government approach to protect consumers from harmful uses of automated systems marketed as artificial intelligence. As the CFPB reiterated in conjunction with the release of our joint statement with the Department of Justice, Federal Trade Commission, and U.S. Equal Employment Opportunity Commission, we will hold creditors and service providers accountable for fully complying with fair lending and other federal consumer financial laws, regardless of the technology they choose to use.

The CFPB also continues to fight against bias in home appraisals and redlining. Families and entire communities are harmed by biased, inaccurate appraisals, as well as geographic discrimination, or redlining. Whether it takes the form of excluding neighborhoods with certain demographics from mainstream credit or targeting them with predatory products, the CFPB is combatting these unlawful practices to achieve meaningfully restorative outcomes for the affected consumers and communities.

The CFPB remains committed to protecting individuals, small businesses, and communities from discrimination, holding institutional and individual bad actors accountable, and ensuring robust and comprehensive remedies for violations of the laws under our jurisdiction. In the years to come, we look forward to advancing our work to ensure a fair, equitable, and nondiscriminatory credit market, with equal economic opportunity for all consumers and their communities.