[1]The Federal Housing Finance Agency [2] (FHFA) recently issued an advisory bulletin [3] that offers guidance on Federal Home Loan Bank [4]'s (FHLBank) core mission achievement. It is to be considered with the agency’s Advisory Bulletin 2010-AB-02, Strategic Plans. The bulletin also describes how FHFA will assess the banks' core mission achievement, as well as FHFA's expectations about the content of the strategic plans for banks with core mission assets below specified levels.
“The mission of the banks is to provide to their members and housing associates financial products and services, including but not limited to advances, that assist and enhance such members' and housing associates' financing of: housing, including single-family and multi-family housing serving consumers at all income levels and community lending,” the FHFA said.
The regulation defines core mission activities to include:
- All advances
- All letters of credit
- All intermediary derivative contracts
- Most mortgage loans (Acquired Member Assets or AMA)
- Certain debt and equity investments in targeted community development and in small business investment companies (SBICs)
- Investment in certain SBIC securities guaranteed by the Small Business Administration
- Investment in notes and certificates guaranteed by the Department of Housing and Urban Development under section 108 of the Housing and Community Development Act of 1974
- Investments and obligations for housing and community development issued or guaranteed under Title VI of the Native American Housing Assistance and Self-Determination Act of 1996.
The FHFA expects each bank to consider the guidelines established in the bulletin when developing its strategic business plan with respect to core mission. FHFA's regulation on strategic business plans requires each bank’s board of directors to adopt, maintain, and periodically review a strategic business plan that "describes how the business activities of the bank will achieve the mission of the bank consistent with" the core mission activities provisions.”
There are two parts to the core mission assets and activities: primary mission assets and supplemental mission assets and activities, according to the FHFA. Primary mission assets include Community Investment Program (CIP) Advances and Community Investment Cash Advances (CICA) and AMA. Supplemental mission assets and activities includes other types of assets or activities that also support the banks’ housing finance and community lending mission, though in a less direct way than advances and AMA such as advance commitments, Housing Finance Agency debt instruments, investment in certain small business investment company securities, certain Small Business Administration government guaranteed investments, standby bond purchase agreements, off-balance sheet mortgages, and letters of credit.
Banks where their Core Mission Achievement ratio is:
- Closer to 70 percent, FHFA expects the Bank's strategic plan to explain how the Bank will bring the ratio closer to the "Preferred Advances and AMA Ratio." If, however, the Bank had significant amounts of Supplemental Mission Assets and Activities or of CIP advances and CICA, FHFA would be less concerned than if the Bank did not.
- Closer to 55 percent, FHFA expects the Bank's strategic plan to include a more detailed description of the actions the Bank plans to take to bring its Primary Mission Assets closer to the "Preferred Advances and AMA Ratio." This provision of the strategic plan should explain in some detail the Bank's plans to increase its mission focus, such as by increasing Primary Mission Assets or Supplemental Mission Assets and Activities, or by decreasing its other investments.
- Advances and AMA Ratio below 55 percent – This category would include any Bank with a ratio of Advances and AMA to COs below 55 percent.
“In assessing the mission achievement of such Banks, FHFA will take into consideration the potential effects of business cycle fluctuations on advance demand and the Banks' ability to influence that demand,” the FHFA said. “ However, FHFA will expect that if a Bank were to have a Primary Mission Assets ratio below 55 percent over the course of several consecutive reviews, then the Bank's board of directors should consider possible strategic alternatives, in addition to the balance sheet actions noted above, as part of its strategic planning."
Click here to view the Federal Housing Finance Agency's FHLBank Core Mission Achievement Bulletin. [3]