ST. PETERSBURG, Fla.–A familiar name to credit unions offered an update on a primary source of liquidity that many may not be familiar with.
Ryan Donovan, who is well known to many in credit unions after previously serving as chief advocacy officer at CUNA and who is now president and CEO of the Council of Federal Home Loan Banks, told the Defense Credit Union Council annual meeting that credit unions should not be misled by the word “bank” in the name of the organizations as he offered an overview of the banks’ role.
He said he calls the federal home loan banks and credit unions “cooperative cousins” due to all the similarities between the organizations, including their cooperative structure.
The 11 regionally based federal home loan banks are used by many credit unions.
The Statutory Mission
“Home loan banks have a statutory mission to provide liquidity to their members and to support housing affordability and community development,” Donovan explained to the meeting. “So, the way that works is if you're not a member of the home loan bank, the home loan bank members pledge collateral, usually some form of housing-related collateral, in exchange for loans that we call advances.
“By law, home loan banks are required to contribute 10% of their net revenues each year to an affordable housing program, and since 1990 we've contributed about $9 billion to affordable housing, making us the largest privately capitalized source of affordable housing support in the United States,” Donovan added.
Role in Lowering Rates
He clarified that although the banks have the word “federal” in their titles they are not part of the federal government and are not funded by taxpayer dollars.
“The work we do with our neighbors, including credit unions, and the impact that we have on the mortgage market means that interest rates are lower for consumers and mortgage credit availability is greater,” said Donovan.
He said all credit unions are eligible for membership in the home loan bank system and credit unions are, in fact, one of the fastest growing segments, with approximately 1,600 CUs tapping the home loan banks for liquidity.
‘Significant Pressure’
Despite the good work, Donovan told the meeting, “Today, the home loan bank system is under significant public policy pressure from our regulator, the Federal Housing Finance Agency, from the Federal Reserve, the Department of Treasury and even Congress. The changes that are being contemplated could have significant impact on credit unions and credit union members.”