NU Online News Service, March 29, 2:45 p.m.EDT

The Federal Housing Finance Agency is considering eliminating orcurtailing access by insurers to its lending window.

Five insurance industry trade groups sent a joint letter to theFederal Home Loan Bank Board (FHLBB) questioning the proposal,including the American Council of Life Insurers, the AmericanInsurance Association, the Financial Services Roundtable, theNational Association of Mutual Insurance Companies and the PropertyCasualty Insurers Association of America.

The FHFA received 65 comments on the proposal, mostly frombanking groups.

The insurance trade groups fear that the Federal Home Loan BankBoard decision, if implemented, could potentially deny access tothe Federal Housing Agency's financing window for its members.

The joint letter says that, currently, 220 insurance companiesare members of the FHLBanks.

The joint letter adds, "Insurance companies are an integral partof the FHLBank System, representing 10 percent of outstandingcombined advances and 8 percent of FHLBank capital stock as ofSept. 30, 2010."

In its own comment letter, PCI says that perhaps 40 of itsmembers could be affected.

The joint letter says that the proposed restrictions "couldimpede the fragile housing market's recovery," and "could alsolimit funding options for insurance companies, and in turn maylimit the ability of FHLBank insurance company members to furtherprovide needed liquidity to mortgage and housing-relatedassets."

The joint letter also notes that the administration and Congressare currently conducting a comprehensive review of the housingfinance system in the United States that will examine the FHLBanks'role in providing liquidity to the financial system. "For thesereasons, we urge that the FHFA table or delay this [proposal], atleast until congressional action," the letter says.

The FHLBB proposal is contained in an advance notice of proposedrulemaking published in late December. The comment period closedMonday.

The agency is asking whether insurers should be subject to arequirement that 10 percent of their assets be in residentialmortgage loans, "a requirement that has never before been appliedto insurers," the PCI says.

The proposal also asks for comment on whether an unspecifiedalternative level of investment in residential-mortgage assetsshould be applied to insurers.

"Although insurers' critical role in the U.S. housing market isunquestioned, the suggestion that a rigid level of mortgage-relatedassets might be required is troubling," the PCI letter says.

The PCI letter was signed by Robert Gordon, PCI senior vicepresident, policy development and research.