FHFA Plan To Limit Insurer Access To Lending Window Draws Fire

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

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

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

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

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

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

The joint letter adds, "Insurance companies are an integral part of the FHLBank System, representing 10 percent of outstanding combined advances and 8 percent of FHLBank capital stock as of Sept. 30, 2010."

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

The joint letter says that the proposed restrictions "could impede the fragile housing market's recovery," and "could also limit funding options for insurance companies, and in turn may limit the ability of FHLBank insurance company members to further provide needed liquidity to mortgage and housing-related assets."

The joint letter also notes that the administration and Congress are currently conducting a comprehensive review of the housing finance system in the United States that will examine the FHLBanks' role in providing liquidity to the financial system. "For these reasons, we urge that the FHFA table or delay this [proposal], at least until congressional action," the letter says.

The FHLBB proposal is contained in an advance notice of proposed rulemaking published in late December. The comment period closed Monday.

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

The proposal also asks for comment on whether an unspecified alternative level of investment in residential-mortgage assets should be applied to insurers.

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

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