The Power IsNow Radio Interview<br />1<br />Lawrence H. Parks <br />Senior Vice President, Legislative <br />and Regulatory Affairs<br />October 4, 2011<br />
Historical Context <br />Government sponsored enterprises (FHLBs and Fannie Mae) and the FHA were established in the 1930’s to facilitate mortgage credit -- the Federal Home Loan Banks through depository institutions and Fannie Mae through the mortgage banks. FHA provided insurance. These institutions had the ancillary purpose of growing jobs and building the housing sector. Today the housing sector is 18% of the U.S. economy. <br />2<br />
HISTORY OF THE FHLBanks<br />What they do<br /><ul><li> The FHLBSF is a cooperatively owned bank, chartered by Congress, capitalized by banks, S&Ls, credit unions and insurance companies with charters or principal place of business in California, Arizona, or Nevada. There are 11 other Federal Home Loan Banks structured like the FHLBSF.</li></ul>3<br />
HISTORY OF THE FHLBanks<br />What they do<br /><ul><li> The FHLBanks provide cash to their members and their members pledge eligible collateral – primarily whole mortgages and mortgage backed securities. The FHLBSF charges about 9 basis points for this business. This business is commonly called the advance business.
The FHLBanks issue debt jointly that provides them funding to meet the advance needs of their members. </li></ul>4<br />
HISTORY OF THE FHLBS<br />What they do<br /><ul><li> The debt issued carries an implied federal guarantee
The FHLB System is credited with first enabling the 30 year mortgage – a product – most homeowners have. </li></ul>5<br />
FHLB Board of Directors<br /><ul><li>The FHLB is a cooperative – its customers are limited to its shareholders – they are banks, S&Ls, credit unions, insurance companies and CDFIs.
FHLB directors do NOT have a duty to maximize shareholder profits; FHLB stock is sold at par and redeemed at par
FHLB mission is to provide liquidity and low cost loans to its members </li></ul>6<br />
The State of Play for Mortgage <br />Finance Today<br /><ul><li> Fannie, Freddie & FHA up to 90% of Market
FHLBanks primary source of liquidity for lenders large & small in height of crisis
Over 60% of mortgage lending occurring through large members
Nearly 40% of advances are to large members</li></ul>7<br />
The State of Play for Mortgage <br />Finance Today<br /><ul><li> Congress and the Administration are currently considering what entities should be the delivery agents for mortgages (large banks, small banks, mortgage brokers/banks); whether there should be a government facilitation of secondary market in mortgage finance (e.g. Mortgage backed securities through Fannie/Freddie); whether the Federal Home Loan Banks should be able to facilitate mortgages from large banks and whether there should be an implied government guarantee of mortgage backed securities and GSE debt issuance.</li></ul>8<br />
The State of Play for Mortgage <br />Finance Today<br /><ul><li> The Congress & the Administration have not made decisions as to what changes will occur in the future.
It is important that real estate professionals make it known that in places like California, large banks are the mortgage lenders and they need access to the FHLBs so as to facilitate low cost mortgage credit to homebuyers in urban, rural and suburban areas. </li></ul>9<br />
Congressional Response to Other Mortgage Crises<br />1989: The Savings and Loan Crisis and the FHFB<br />The federal government took all retained earnings from FHLBanks to pay for the S&L bailout and established Refcorp bonds.<br />The FHLBanks were required to pay 20% of their income to pay the debt service on the bonds until the bonds are paid off.<br />The 1989 legislation also established the Affordable Housing Program (AHP), which required each Federal Home Loan Bank to set aside 10% of its annual earnings for residential real estate projects for low and moderate income families.<br />10<br />
The State of Play for Mortgage <br />Finance Today<br /><ul><li> Given the near dormant nature of the Private Label Mortgage Backed Security market – now more than ever – the government implied guarantee is needed to ensure continuous, uninterrupted, broadly available mortgage credit for homeowners and future homeowners.</li></ul>11<br />
Finally remember:<br />GSEs are the market currently.<br />Homeownership is critical to wealth accumulation for lower, moderate and middle income families.<br />Government has facilitated homeownership since the 1930’s.<br />Other crisis have existed and the government response was not to end the GSEs.<br />Providing liquidity to banks of all sizes and ensuring broad access to low cost universally available mortgage credit as a critical component of ensuring that low, moderate and middle income families have a chance to own a home.<br />12<br />