The role of the Federal Home Loan Banks in the U.S. financial system has come under scrutiny in the wake of last year's bank failures, and a series of recent announcements suggest the banks are trying to raise awareness of their work in providing affordable housing.
“For decades, FHLBanks have played a key, yet unseen, role in supporting the mortgage market and supporting affordable housing and community development efforts, and have always highlighted the good work they do through their members in communities across the country,” said Ryan Donovan, president and CEO of the Federal Home Loan Bankers Council. “Two things that emerged clearly from FHFA's survey were that people want to know more about the FHLBank system and they want more from the system.”
In June, the Federal Housing Finance Agency, which regulates the FHLBanks, formally invited public input on ways to improve the provision of affordable housing.
By law, 10% of revenue must go to support the mission of providing affordable housing.
Banks strive to exceed that minimum.
“Last year, the banking system came together and decided that each bank would commit to donating 15 percent of their profits to affordable housing programs or some discretionary program to support affordable housing and community development,” Donovan said in a recent interview with National Mortgage News.
Last month, the council released its second impact report, noting that 11 banks have $355 million in statutory affordable housing program assessments available for 2023.
They committed $180 million in self-funding last year towards affordable housing and economic development, and this year they are evaluating $752 million in AHPs during 2023, which could be deployed in 2024.
In addition to the 15 percent donation, the bank has developed nearly 30 new independent grant programs over the past two years to address the needs of individual districts.
“Telling our story more comprehensively and getting the word out about these new efforts is critical to their success and a key part of responding to the feedback we've heard,” Donovan said in a comment to this article.
Several banks have done a good job of publicizing their efforts to support affordable housing: FHLBank Dallas regularly issues press releases about its activities;
Since the beginning of this week, three banks have announced their support for the housing mission.
FHLBank Chicago members can now offer mortgages underwritten using the VantageScore credit score model as collateral. Previously, loans had to be issued using the Classic FICO model.
The FHFA is in the process of revising its secondary market requirements from Classic FICO, which was the only scorecard allowed for both the VantageScore and FICO 10T models.
“FHLBank Chicago's products and practices work to close the gap on the path to homeownership for borrowers in our member communities across Illinois and Wisconsin,” President and CEO Michael Erickson said in a press release. “I'm proud of our partnership with VantageScore and the progress we're making in advancing financial inclusion and equitable access to mortgage financing in our district.”
The parties argue that using VantageScore opens the market to an estimated 2.4 million consumers in the two states who would not have been scored under the Classic FICO model.
In February, FHLBank San Francisco authorized mortgage lenders to use the VantageScore model.
Also this week, FHLBank Atlanta announced an initiative in collaboration with the Georgia Community Affairs Office to increase the availability of down payment assistance.
Each agency has its own program, but currently homebuyers can take advantage of both programs at the same time to put up to $27,500 toward down payments and closing costs.
“Rising home prices and inflation have created an incredibly tough market for potential homebuyers,” Kirk Malmberg, president and CEO of Atlanta FHLBank, said in a press release. “With similar down payment assistance programs and many popular banking services available, we've partnered with DCA to create an opportunity for homebuyers to increase the amount of money they can put toward their down payment and homebuying closing costs.”
Through FHLBank Atlanta's First-Time Homebuyer and Community Partners program, borrowers can get loans of up to $15,000 to purchase a home. The bank said in February it would set aside $40 million for DPA through 2024.
Meanwhile, DCA’s Georgia Dream Homeownership Program offers up to $12,500 per borrower.
“DCA is committed to partnering with organizations that share the same mission to increase homeownership opportunities and strengthen communities,” said Christopher Nunn, the agency's director. “We are proud of the Georgia Dream Homeownership Program and are confident that by combining this program with funding from FHLBank Atlanta's program, we can help more Georgians achieve homeownership.”
The third announcement was made by San Francisco FHLBank, which provided $3.1 million in affordable housing grants to Arizona-based housing developers through its Affordable Housing Program General Fund, representing a 54% increase in funding for Arizona participants compared to 2023.
“The housing affordability crisis impacts countless families and individuals living in urban areas, densely populated areas, rural areas, tribal communities and many places in between,” Alana McCargo, who recently became president and CEO of San Francisco FHLBank, said in a press release. “We are pleased to work with our members to nearly double our grant funding this year to 59 projects in urgent need across the region.”
Under McCargo's predecessor, Theresa Brice Bazemore, the bank inked a deal with the Urban Institute in 2021 to create the Racial Equity Accelerator for Homeownership, a two-year program for an incubator to develop innovations in housing finance, including mortgage underwriting and financial technology.
The Arizona State funding, in partnership with Western Alliance Bank and the Pascua Yaqui Tribe, will be used for three projects, including Pascua Yaqui Homes X. The funds will help build a 45-unit housing complex to house seniors on the Pascua Yaqui Reservation.