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Senators Urge FHFA to Reconsider Proposed Mortgage Asset Test
Monday, December 22, 2014 6:35 AM

Last week, more than two dozen Senate lawmakers signed a letter urging the Federal Housing Finance Agency to drop its proposal to tighten Federal Home Loan Bank membership rules. In a letter co-authored by Sens. Joe Manchin (D-WV) and Mark Kirk (R-IL) and signed by 27 other senators, the group urged the FHFA to reconsider its proposed mortgage asset test.

The FHFA issued a proposal earlier this year that would require large institutions to have at least 10 percent of their assets in mortgages in order to maintain membership with a FHLB. Small banks and credit unions with less than $1 billion in assets would have to maintain at least 1 percent of their assets in mortgages.

The senators noted that some credit unions and banks could be expelled from membership if they cannot meet the "new and unprecedented" mortgage asset tests. "The consequences are harsh, and the terms of the proposed rule are inconsistent with the express terms of the FHLBank Act," the Manchin-Kirk letter says.

Industry groups claim the mortgage asset test is unnecessary and will reduce liquidity in the Home Loan Bank System. Even NCUA Vice Chairman Rick Metsger has said the proposed change would give big banks a major advantage over credit unions.

The banking lobby has been successful in getting lawmakers to push back. In mid-November, 68 House lawmakers sent a letter to the FHFA that points out Congress reviewed the FHLB membership rules four years ago and "chose not to narrow eligibility in the system."

The senators that signed on to the Manchin-Kirk letter suggest that FHFA is over-stepping its role as a regulator. "We urge you to reconsider this proposal and consult with Congress, where these important decisions should be made," the Senate letter says.

Source:  Credit Union Journal