Federal Home Loan Bank System: Key Loan Pricing Terms Can Differ Significantly
Highlights
The Federal Home Loan Bank System's (FHLBank System) traditional approach to providing community and housing finance through 12 regional FHLBanks faces continual challenges due to consolidation in the financial services industry and the emergence of mortgage lenders with nationwide operations. In addition, the Federal Housing Finance Board (FHFB), the System's financial regulator, is analyzing the benefits and costs of potential changes to the System's membership rules that would make it easier for financial institutions to join multiple FHLBank districts (referred to as multidistrict membership). To provide information that would be helpful in assessing the potential safety and soundness implications of these developments, GAO was asked among other items to (1) determine whether key differences exist in the terms--such as interest rates and collateral requirements--that FHLBanks make on loans, also known as advances, to member financial institutions such as banks and thrifts and (2) discuss FHFB's oversight of the FHLBanks and safety and soundness data reporting requirements.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Housing Finance Board | To strengthen FHFB's safety and soundness oversight, FHFB should review its current collateral reporting requirements and work with the FHLBanks to obtain data that are useful in understanding collateral practices within the System. |
Closed – Implemented
The Federal Housing Finance Board (FHFB) has revised the guidance that it distributes to the Federal Home Loan Banks (FHLBanks) for the collection and reporting of advance collateral data. The revised guidance should help ensure consistent data reporting and assist FHFB in monitoring the FHLBanks' safety and soundness, as well as the placement of certain types of collateral, particularly small business and agricultural collateral.
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| Federal Housing Finance Board | FHFB should also work with the FHLBanks to obtain data necessary to understand the competitive and safety and soundness implications of holding companies whose subsidiaries operate in different FHLBank districts as well as multidistrict membership. |
Closed – Not Implemented
Per a letter from FHFB to GAO dated 3/23/2007, the agency stated that it did not plan to collect additional information on the competitive implications of FHLBank members that have subsidiaries that are members of multiple districts. FHFB said that it had studied the issue but decided not to collect additional data for several reasons. For example, comparing FHLBank advance rates (and therefore) is complicated by differing collateral and stock purchase requirements among the 12 FHLBanks. However, FHFB said that it would continue to examine the banks in terms of their advance rate pricing and related issues.
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