Examining the Federal Home Loan Bank System: Reform and Oversight
The Federal Home Loan Bank (FHLBank) System, established in 1932, is a pivotal government-sponsored enterprise focused on housing finance support. Despite its importance, it often receives less public scrutiny compared to Fannie Mae and Freddie Mac. On July 21, the House Financial Services Subcommittee on Housing and Insurance will hold its first hearing in 15 years to closely examine the FHLBanks' operations.
The Consumer Federation of America's (CFA) analysis reveals that the FHLBank System has not effectively leveraged its vast financial resources to boost housing development, reduce mortgage costs, or support small lenders. Although it benefits from an indirect taxpayer subsidy of $7.3 billion annually, the focus seems to have shifted towards enhancing profits for large financial institutions, away from its core mission of fostering housing and community growth.
Insurance companies and major banks are primary beneficiaries of the FHLBanks through low-cost collateralized loans known as "advances." These advances, intended to stimulate housing-related lending, are secured at rates akin to Treasury securities due to the FHLBank's government-sponsored status. Nevertheless, research suggests a limited impact on housing initiatives, as many FHLBank members have halted mortgage origination, with 42% not issuing any mortgages in the past five years.
Current membership criteria enable insurance companies, even those with private equity backing, to access these advances, despite minimal involvement in housing finance. The borrowing share of insurance companies increased from 22% in 2024 to 26% in 2025, surpassing the loans directed to smaller institutions. Since 2013, the number of insurance company members and the volume of advances they obtain have steadily risen, a trend amplified by the COVID-19 pandemic.
Reports of increased executive compensation within the FHLBank System have drawn scrutiny. In 2025, FHLBank presidents earned an average of $2.4 million, with total CEO compensation reaching $36.5 million. This raises questions given the relatively straightforward nature of FHLBank operations compared to commercial banks, which are typically used as benchmarks for salary determinations.
Reform proposals include restricting insurance company memberships or requiring loans to be backed by residential real estate. Adjusting executive pay to better align with the FHLBanks' housing mission is also on the table. Proposed Senate bills could extend regulatory authority over executive compensation, while an increase in contributions to the Affordable Housing Program from 10% to 30% of net income is suggested to enhance housing affordability without extra taxpayer burden.
The ongoing hearing by the House Financial Services Subcommittee hints at a potential move towards stricter oversight and reform of the FHLBank System. These actions aim to realign the institution with its foundational goals of promoting housing affordability and community investment.