The Affordable Housing Program and Community Investment Program of the Federal Home Loan Banks By David Jeffers, Executive Vice seeking to build and renovate housing for low President of Policy and Public Affairs, to moderate income households. To ensure that Council of FHLBanks AHP-funded projects reflect local housing needs, each FHLBank is advised by an Affordable he Federal Home Loan Banks (FHLBanks) Housing Advisory Council for guidance on are the nation’s largest single, private regional housing and community development source of funds for community lending. issues. TThey are behind-the-scenes players that perform a vital role in the nation’s financial system. AHP consists of two programs: a competitive These 11 regional cooperatives provide reliable application program and a homeowner set-aside liquidity for their member institutions to turn program. Under the competitive application into lendable funds to support housing and program, an FHLBank member submits an community investment. Local lending institutions application on behalf of a project sponsor. Each borrow from the FHLBanks to finance housing, FHLBank establishes a point system to score community development, infrastructure and applications based on nine criteria required by small businesses in their communities. The regulation. AHP competitive awards are made FHLBanks were created by Congress in 1932 and during scheduled funding rounds each year, are regulated by the Federal Housing Finance starting with the highest scoring application Agency (FHFA). FHFA was created by the Housing until the available money is distributed. and Economic Recovery Act of 2008, and also Project sponsors partner with financial regulates Fannie Mae and Freddie Mac. institutions to seek the competitive grants or low-cost loans. Applicants are encouraged PROGRAM SUMMARIES to leverage their awards with other funding FHLBanks administer two housing and sources, including conventional loans, economic development programs. government subsidized financing, Low Income Housing Tax Credit equity, bond financing, in the Affordable Housing Program (AHP) national Housing Trust Fund money Community The AHP is designed to help member financial Development Block Grants, and foundation institutions and their community partners grants. Each FHLBank provides training and develop affordable owner-occupied and rental application assistance. See individual FHLBank housing for very low to moderate income websites for details. families and individuals. Projects serve a wide If rental housing is developed with AHP funds, range of needs. Many are designed for seniors, at least 20 percent of the units must be reserved persons with disabilities, homeless families and for and affordable to households with very low individuals, first-time homeowners and others income, less than 50 percent of the area median with limited resources. income (AMI). Owner-occupied housing must be FHLBanks must contribute 10 percent of their occupied by a household with income less than net income from the previous year to affordable 80% of AMI. AHP is a shallow-subsidy program; housing through the AHP. The minimum annual for the competitive program the average urban combined contribution by the 11 FHLBanks area subsidy per unit in 2017 was $10,469 per must total $100 million. Member banks partner unit, while the average rural subsidy per unit with developers and community organizations was $17,283.

NATIONAL LOW INCOME HOUSING COALITION 5–29 Under the homeowner set-aside program, an rental projects, owner-occupied housing, and FHLBank member applies for grant funds and manufactured housing communities. Economic disburses the funds directly to the homeowner. development projects must be in low and An FHLBank may set aside up to $4.5 million, moderate income neighborhoods or benefit low or 35% of its annual AHP contribution, to assist and moderate income households. In 2016, total low or moderate income households purchase CIP advances amounted to $3.2 billion; $3.1 or rehabilitate homes. At least one-third of billion for housing projects resulting in 37,306 an FHLBank’s aggregate annual set-aside housing units, 58 percent of which were rental contribution must be allocated to first-time units.. Economic development projects were homebuyers. The maximum grant amount per awarded $115 million. household is $15,000. How the FHLBanks Work In 2016, the FHLBanks awarded $283 million The FHLBanks are member-owned cooperatives under the competitive program to assist that provide funding for housing through all 25,530 households. In 2016, 94 percent of the market cycles. Approximately 7,000 lenders are competitive program units were rental units, members of the FHLBanks, representing more the highest percentage over the last 10 years. than 80% of the insured lending institutions Fifty-four percent of the rental units helped very in the country. Community banks, thrifts, low income households with income between commercial banks, credit unions, community 31 percent and 50 percent of area median development financial institutions, insurance income(AMI) and 21 percent served extremely companies, and state housing finance agencies low income households, those with income less are all eligible for membership in the system. than 30 percent of AMI. Forty-four percent of The 11 FHLBanks are in Atlanta, Boston, owner-occupied units served very low income Chicago, Cincinnati, Dallas, Des Moines, households. Indianapolis, New York, Pittsburgh, San Between 1990 and 2016, the FHLBanks Francisco, and Topeka. distributed approximately $4.4 billion in Each FHLBank has its own board of directors, competitive AHP funds. This supported more comprised of members of that FHLBank and than 660,000 units, 77 percent of which were independent (non-member) directors. The rental units, 81 percent of which helped very low boards of directors represent many areas of income households. expertise, including banking, accounting, The homeowner set-aside program was housing, and community development. authorized in 1995. Between 1995 and 2016, The primary purpose of the FHLBanks is to the homeowner set-aside program provided provide members with liquidity. In fact, the approximately $953 million, supporting more FHLBanks are the only source of credit market than 167,000 households. In 2016, the set-aside access for most their members. Most community program distributed $85.5 million to assist institutions do not have the ability to access the 13,555 owner-occupied households. The average credit markets on their own. set-aside subsidy per household was $5,710. FHLBank loans to members, called “advances,” Community Investment Program (CIP) are a nearly instantaneous way for members Each FHLBank also operates a CIP that offers to secure liquidity. The FHLBanks go to the below-market rate loans to members for debt markets several times a day to provide long-term financing of housing and economic their members with funding. The size of the development that benefits low and moderate entire system allows for these advances to be income families and neighborhoods. CIP structured in any number of ways, allowing each finances housing for households with income member to find a funding strategy that is tailored less than 115 percent of AMI, including to its needs.

5–30 2019 ADVOCATES’ GUIDE In order to qualify for advances, a member must pledge high-quality collateral, in the form WHAT TO SAY TO LEGISLATORS of mortgages, government securities, or loans The FHLBanks are an indispensable resource on small business, agriculture, or community in the work done by housing organizations development. The member must also purchase to address the housing needs of low income additional stock in proportion to its borrowing. households. They have several programs and Once the member’s FHLBank approves the loan products that help create strong communities. request, it advances those funds to the member Their community lending programs can be institution, which then lends the funds out utilized to help drive job growth at the local in the community for housing and economic level. The AHP grants have remained a reliable development. and stable source of much-needed affordable housing funding, even as other sources of Each of the 11 regional FHLBanks is self- affordable housing funding have dried up. capitalizing. One of the benefits of the FHLBanks’ regional, self-capitalizing, cooperative business The role the FHLBanks play in the financial model is the ability to safely expand and contract system is vitally important. In any restructured to meet member lending needs throughout housing finance system, the FHLBanks must various business cycles. During times of high continue to function as steady and reliable advance activity, capital automatically increases. sources of funds for housing and community As advances roll off the books of the FHLBanks, development through local institutions. capital is reduced accordingly. FOR MORE INFORMATION During the financial crisis, the FHLBanks continued to provide liquidity nationwide to Council of FHLBanks, www.FHLBanks.com members for housing and community credit Federal Housing Finance Agency, needs through an extremely challenging period https://www.fhfa.gov/SupervisionRegulation/ of economic stress. As other sources of liquidity FederalHomeLoanBanks disappeared, and before the coordinated response of the federal government, the FHLBanks increased lending to members in every part of the country by 58% between the second quarter of 2007 and the third quarter of 2008. Advances exceeded $1 trillion in the third quarter of 2008. FHLBanks are jointly and severally liable for their combined obligations. That means that if any individual FHLBank would not be able to pay a creditor, the other 11 FHLBanks would be required to step in and cover that debt. This provides another level of safety and leads to prudent borrowing.

FUNDING No taxpayer funds are involved in the operation of the privately owned FHLBanks. The FHLBanks’ Office of Finance, the clearinghouse for FHLBank debt transactions, accesses the global capital markets daily. FHLBank debt is sold through a broad, international network of about 100 underwriters.

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