A bill has been introduced into US Congress that would stop the Federal Housing Finance Agency (FHFA) from moving forward with its rule to exclude captive insurance companies from being Federal Home Loan Banks (FHLB) members.
The H.R. 3808 Act, introduced by Representatives Blaine Luetkemeyer, Dennis Heck, Patrick McHenry and John Carney, would prevent the FHFA from excluding the captives of real estate investment trusts (REIT) from FHLB memberships.
Luetkemeyer said in a statement: “This system plays an important role in our economy, and while conversations around membership in the system are valuable, decisions should not be made in a vacuum. They should be made by Congress and based on public input and extensive analysis.”
The bill would also require the Government Accountability Office to study the impact that FHFA membership provisions would have on the FHLB and its members.
David Stevens, president of MBA, said in a statement supporting the bill: "Captive insurers facilitate substantial investment in the housing finance market, including by financing the origination and purchase of mortgages and mortgage-backed securities by REITs.”
“Mortgage REITs represent a growing and necessary segment of the housing finance market, and their access to the FHLB facilitates greater credit availability while simultaneously reducing financial risk to the taxpayer."
The definition of ‘insurance company’, under the FHFA’s proposed rule, would mean a company that has as its primary business the underwriting of insurance for non-affiliated persons.
This would continue to include traditional insurance companies but not captive insurers. As a result, existing membership of captive insurers would be ‘sunset’ over five years with defined limits on advances.
Addressing the Mortgage Bankers Association’s Annual Convention and Expo on 19 October, FHFA director Melvin Watt confirmed that his agency is pressing ahead with the reform.
He declined to elaborate on the proposed rule would but confirmed that the 1,300-plus comments that the FHFA received during a consultation had been reviewed and the final rule will be issued by the end of 2015, or within Q1 2016 at the latest.
Watt said in a statement before a congressional financial services committee in January: “A captive insurance company provides benefits only for its parent company, which itself is often not eligible for FHLB membership. While captive insurers may in some cases be involved in housing finance, allowing them to have access to the FHLB system raises a number of policy issues that are discussed in the proposed rule.”
The latest captive to join an FHLB is Arlington Asset Investment’s wholly-owned captive insurance subsidiary.
The captive was approved as a member of the FHLB of Cincinnati during Q3, providing Arlington Asset Investment with diversification of funding sources at a reduced cost to traditional repurchase financing, the asset manager said in its latest financial results.
