The Federal Housing Finance Agency (FHFA) is considering giving more financial firms, including nonbank mortgage lenders, access to the $1.4 trillion network of Federal Home Loan Banks (FHLBs), Bloomberg reported, citing people familiar with the matter.
The FHFA may stop short of explicitly calling for nonbank mortgage lenders to be included, but leave the door open to that result by not suggesting such a restriction, according to people who asked not to be identified discussing private deliberations. No final decisions were made, Bloomberg reported.
The FHFA, which is expected to release its findings by the end of September, declined to comment.
“The agency is finalizing recommendations on a range of topics, including improving the FHLBanks’ support for members doing the most for housing and community development,” the FHFA said in an e-mailed response.
The closed-door discussion by the FHFA, which is part of a regulatory review of the FHLB system, could be the first step to giving many more firms access to a coveted financial backstop currently reserved mostly for banks.
Any expansion would require congressional actions and would need firms to agree to more government oversight, the outlet reported.
Established in 1932 during the Great Depression, the FHLBs have become a general liquidity provider for banks.
FHLBs – 11 U.S. government-sponsored banks that provide liquidity to financial institutions to support housing finance and community investment – lent billions of dollars to Silicon Valley Bank, Signature Bank and First Republic Bank before its collapse.
However, their importance in housing finance declined as nonbank mortgage firms grew in size.
Of the top 10 mortgage lenders in the first six months of 2023, six were nonbank lenders — including United Wholesale Mortgage (UWM), Rocket Mortgage, PennyMac Financial and AmeriHome Mortgage, according to data from Inside Mortgage Finance.
While proposals to include mortgage firms in the FHLB system have circulated for years, with proponents saying that granting nonbank lenders access would help strengthen FHLB’s connection to home loans, the regulation these firms could face remains a sticking point.
Unlike banks that are directly overseen by federal and state regulators, nonbank mortgage firms don’t have a designated regulatory authority, which could pose a potential risk to financial stability.
In April, two advisers to the Biden administration suggested that nonbank mortgage lenders and real estate investment trusts be granted access to the FHLBs, in an Urban Institute report.
Jim Parrott, a former Obama administration housing adviser, and Mark Zandi, chief economist at Moody’s Analytics, suggested FHFA as an overseer in exchange for getting access to the FHLB membership.
This article was updated with comments from the FHFA at 2 p.m. E.T.