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FHLBanks under pressure to invest more in affordable housing

Share of banks' income toward affordable housing is expected to increase from 10% to 15% in the 2023 cycle

The nation’s network of Federal Home Loan Banks (FHLBanks) expects to be required to increase its share of investments in affordable housing. The push will come from Congress, where the COVID-19 pandemic rekindled discussions about a program established in the 1990s.

The Affordable Housing Program (AHP) requires that each of the 11 FHLBanks in America contributes 10% of the preceding year’s net income to the purchase, construction, or rehabilitation of homes. The total volume should not be lower than $100 million in total.

The resources help families with 80% or less of the area median income for down payments or closing costs, for example. Also, it helps rental housing where at least 20% of the units are occupied by families with incomes at 50% or less of the median.  

“There is currently legislation pending that would increase it (above the 10% level). So, it is possible that we could see that go up at some point,” said Teresa Bryce Bazemore, president and chief executive officer at the Federal Home Loan Bank of San Francisco, during a panel in the Mortgage Bankers Association (MBA) Annual Convention and Expo in San Diego on Tuesday.  

In May, Sen. Catherine Cortez Masto (D-NV) and Rep. Ritchie Torres (D-NY) introduced a bill in both houses proposing changes to the program due to the economic crisis caused by the pandemic, and to spur economic development in low-income communities.


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According to the proposed bills, banks in the system would contribute 20% of the income to affordable housing, but not lower than $200 million annually. Additionally, an amount equal to not less than 2% of the 20% shall support Indian tribes and communities, which includes awards outside the banks’ districts.  

The Federal Home Loan Bank System was created in 1932 by the Federal Home Loan Bank Act as a government-sponsored enterprise to support mortgage lending. There are 11 regional FHLBanks, privately capitalized, working with 6,800 financial institutions to provide funding for mortgages and asset-liability management.

Bazemore told HousingWire she expects the contribution to the affordable housing program to increase to a 15% level. In addition, she said Congress might not approve the change fast enough to be implemented next year.

“The discussions are about whether or not it would be included in the budget reconciliation. So, the timeline really depends on what ends up in the budget reconciliation at the end of the day. And it would be for the cycle of 2023,” she said.

Last year, the FHLBanks contributed more than $362 million in affordable housing subsidies. Since 1990, they’ve contributed $7 billion to 990,000 households. According to Bazemore, the Federal Home Loan Bank of San Francisco invested over $1 billion in the affordable housing program since its creation.

In the first week of October, the bank also launched a $1.5 million, two-year partnership with the Urban Institute to create a racial equity accelerator program.

The goal is to develop and incubate innovations in housing finance, including underwriting and financial technology – for example, finance research and development in alternatives to credit score models and technologies to overcome historical biases.  

“For all of us that have been in this industry for quite some time, we’ve been looking for ways to advance racial equity in homeownership,” Bazemore said. “When you look at where we are today, we’ve really lost ground over the last few years. We are trying to figure out how to address this.”

Correction: An earlier version of this story incorrectly said total volume directed to affordable housing should not be below $100 million for each bank; it is an aggregate. Additionally, Federal Home Loan Banks have contributed $7 billion to 990,000 households, not 750,000 as initially reported.

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