Bill Expands Federal Home Loan Bank Support for Housing & Local Biz, Ties Exec Pay to Mission Goals

This bill, the Federal Home Loan Banks' Mission Activities Act, aims to broaden the reach and impact of the Federal Home Loan Bank (FHLB) system. Think of FHLBs as banks for banks and certain other financial institutions, providing them with funding. This legislation updates their playbook, focusing on boosting financing for housing (especially affordable units), agriculture, small businesses, and general community economic development in various areas, including rural, urban, low-income, and Tribal communities.

Opening the Doors Wider: More Lenders Can Tap FHLB Funds

So, what's actually changing? First, the bill officially welcomes more players into the FHLB fold as 'community financial institutions'. Specifically, Section 3 amends the definition (in 12 U.S.C. 1422(10)) to explicitly include credit unions and certified Community Development Financial Institutions (CDFIs), provided they meet asset size requirements (generally under $1 billion in average total assets over three years) or are Treasury-certified CDFIs. This means more local lenders, potentially including the credit union down your street, could gain better access to FHLB funding ('advances') to support their lending activities.

Beyond just who gets funding, Section 2 clarifies how FHLBs can help. It reaffirms that FHLBs can use a wider array of tools beyond just loans, including grants, subsidized financing (think lower interest rates), and credit enhancements to back their members' efforts in housing and community development. The goal is to give FHLBs more flexibility to support projects that might not fit the traditional lending box.

Affordable Housing Gets an Update: More Funding, More Flexibility

The bill significantly tweaks the Affordable Housing Program (AHP), detailed in Section 4. FHLBs can use subsidized loans and grants to help members finance affordable housing for both homeowners and renters with low-to-moderate incomes. If a member uses a subsidized FHLB advance for a loan, that loan's interest rate must also be subsidized.

Funding for the AHP gets a boost and extension: the Banks collectively must contribute at least $200 million annually through 2025, calculated as 30% of their combined net income from the previous year. Additionally, each FHLB can now allocate up to 15% of its prior year's net income for non-competitive grants, subsidized loans, or investments targeting affordable housing or community needs in low-to-moderate income areas, including Tribal or rural communities. This could fund local non-profits or specific community development projects.

Section 4 also adds crucial flexibility following major disasters. The Director overseeing the FHLBs can temporarily suspend certain AHP requirements. For instance, vacant AHP-funded rental units could house displaced families regardless of their income, potentially speeding up local recovery efforts. While helpful, careful oversight will be needed to ensure this flexibility is used appropriately.

Linking Paychecks to Purpose: How FHLB Exec Comp Might Change

Section 5 introduces changes to how FHLB executive officers get paid. The Director is tasked with ensuring their compensation is 'reasonable' and comparable to similar roles, like those at regional Federal Reserve Banks. However, this bill adds a twist: compensation decisions must now consider 'mission investments'.

What counts as mission investments? The bill lists things like the percentage of members getting community investment advances, sponsoring AHP projects, the share of loans going to smaller 'community financial institutions', and investments in municipal bonds. The Director can also add 'other reasonable mission investments' via regulation. Crucially, the Director can authorize pay higher than regional Fed counterparts if specific mission goals are met. While tying pay to mission sounds good, the definition of 'mission achievement' and 'reasonable investments' will rely heavily on the Director's interpretation, requiring clear guidelines to prevent potential misuse.

Keeping Track: New Annual Report on Bank Collateral

Finally, Section 6 adds a transparency measure. The Director must now submit an annual report to Congress detailing the collateral pledged to the FHLBs by their members. This report will break down collateral by type and by FHLB district, giving policymakers a clearer picture of the assets backing the system.