Welcome to the CUNA News Podcast. I'm Yeekeng Yang, Digital Media Design Specialist at CUNA. In this episode of the podcast, I have a conversation with Ryan Donovan. As a former long time employee at CUNA serving in multiple roles, including Executive Vice President and Chief Advocacy Officer, Donovan has been a long time servant for credit unions.
Today, he continues serving as President and CEO for the Council of Federal Home Loan Banks. Look forward to hearing topics, including the FHLB system, how credit unions fit into the mix and recent developments with the FHLB. Here's Ryan Donovan.
Yeekeng: Hello, Ryan. Thanks for coming on to the CUNA News Podcast here. Welcome. We're very happy to have you on. So for our listeners who may not be familiar with the Federal Home Loan Bank System can you start off today by telling us a little bit about the system and its history and maybe a little bit by yourself who you are and what you do at the FHLB.
Ryan: Well, thanks. I'm glad to be back on the CUNA podcast. My name is Ryan Donovan. I'm president and CEO of the Council of Federal Home Loan Banks. And before coming to the council last September, I was the chief advocacy officer at CUNA for, well, for about 15 years or so. Worked in a number of capacities, but was ultimately the EVP and, and chief advocacy officer.
So I'm very familiar with. With credit unions, with credit union advocacy, and certainly with the Credit Union National Association. So, the home loan bank system, you know, it's a lot like the credit union system. Home loan banks were created in 1932. They were originally... Created to ensure that savings associations and insurance companies had access to liquidity and they did that by connecting them to the capital markets.
There are today 11 regionally based federal home loan banks and like credit unions, they're member owned cooperative financial institutions. They serve their member institutions and membership is limited today to credit unions, banks, banks. Thrifts, Insurance Companies, and Community Development Financial Institutions, CDFIs.
And generally the way that it works is that members of the Home Loan Bank will pledge eligible collateral to the bank in exchange for loans that we call advances. And under the Home Loan Bank Act, Eligible collateral is primarily limited to mortgage related collateral, so loans or mortgage backed securities, those types of, those types of things.
I think the final point that's worth making about home loan banks and about the federal home loan bank system is just a note about the word federal in our title, because that causes a lot of confusion. I don't think it'll cause confusion. With the credit union audience because as is the case with credit unions You know in federal credit unions that word federal is just an indicator of the government Which has chartered the institution in this case The federal government has given the home loan banks the charter like credit unions Home loan banks are funded entirely by private and member capital.
We're not funded by the taxpayers. The taxpayers don't incur any expense to keep home loan banks operating. In fact, I think that the impact that we have on the mortgage market in terms of reducing interest rates and making additional mortgage credit available shows that we're a really good deal for homeowners and for communities.
Yeekeng: So with that all said, how do credit unions fit into the mix? You said credit unions were members, but are all credit unions members?
Ryan: So I'm happy to say that all credit unions are eligible for membership, and today we've got about 1, 600 credit unions that are members of their home loan bank. In fact, the credit unions are really one of the fastest growing segments of our membership. So about 10 years ago, there were only about 1, 200 credit union members, and today I think there's, like I said, I think there's around 1, 600.
And we're averaging somewhere between 35 and 40 new. Credit union members each year. And this is really important. I think credit unions that aren't members of the home loan bank system ought to look into it because membership in a home loan bank gives credit unions access to fast and reliable liquidity that they can use to help meet the needs of their members and communities.
Yeekeng: . So your regulator, the Federal Housing Finance Agency, has undertaken a comprehensive review of the F-A-F-H-L bank system. what has this review entailed and have credit unions been a part of that process?
Ryan: Yeah, so this review process was announced really shortly after I took my position at the council last September, and the finance agency undertook this review, in their words, to ensure that the home loan banks... Remain positioned to meet the needs of today and tomorrow as the system approaches its centennial in 2032.
So what the agency did is they asked stakeholders for feedback around six areas. They asked about Home Loan Bank's general mission and the purpose in a changing marketplace. They wanted to know what stakeholders felt about how home loan banks were organized. How their operational efficiency and effectiveness was perceived.
They looked into Home Loan Bank's role in promoting affordable, sustainable, equitable, and resilient housing and community investment. They asked stakeholders how the Home Loan Banks are addressing the unique needs of rural and financially vulnerable communities. They took a look at the product, services, and collateral requirements that our members engage with.
And, and lastly, they asked questions about membership eligibility and requirements. And so, they took this feedback through what I think was a relatively comprehensive process. They had six days of public listening sessions. Three at the beginning of the process and three at the end. In between those...
They held 19 regional and virtual roundtables, where at each of those sessions they heard from six or seven people that the agency picked to sit at the table. And then there were two public comment periods where stakeholders could submit written comments. And credit unions have been a part of each of these processes, with representatives speaking at the listening sessions and participating in several roundtables.
And, and let me tell you, we were really grateful to have the credit union representatives and the trade associations submit public comments in support of the system. You know, we asked our members. To tell FHFA why they're members of the Home Loan Bank, how they use the Home Loan Bank, and the impact that it has on the people in the communities that they serve.
And boy did our members respond. We had nearly a thousand people participate in this process and about 80 percent of what the agency heard Came from folks who use the system and support it. In fact, if you were gonna describe a theme that could be woven through all of the comments that the agency heard, all of the feedback, it's that everybody wants more from the home loan bank system.
And frankly, that's a, that's a really nice place to be. A really nice problem to have.
Yeekeng: my understanding is that the FHFA will issue a report based on their review of this system any day now. What do you expect the report will contain and how might credit unions be impacted?
Ryan: Sure. Yeah, we're told the report is imminent. The agency promised it to Congress by the end of September. We're now in the middle of October. So, any day now, we think. But here's the thing. The agency told us to expect a report that's going to include legislative and regulatory recommendations.
They're also underway working to implement some of the review product through the supervisory process of the, of the home loan banks. And, and we also expect that the report will include recommendations from the agency directly to the Home Loan Bank. So, look for four buckets of recommendations.
Legislative, Regulatory, Supervisory, and then Home Loan Bank recommendations. Now, given what we all heard during the review process, it's reasonable to expect that the report's going to be additive. That it's going to chart a path for the Home Loan Banks to be stronger partners with our members and with the community groups that we support through the Affordable Housing Program and other voluntary programs.
But, you know, I've been in Washington almost 30 years, so forgive me if I'm a little cynical because in any process like this, you know, you get bits and pieces that drip out while everybody's waiting for a final verdict. So, you know, when this report comes out, and in the months, and yes, years after, credit unions really need to be paying attention.
to any recommendation or any action from the finance agency that limits, complicates, or disrupts their access to their home loan bank or anything that might minimize the value of membership or the nature of the cooperative. And so, here are some of the things that, that we think might be under consideration by the finance agency.
You know, there's been some talk about potentially putting some limits on Remember borrowing, whether that's a cumulative limit, the Total amount any member could borrow, or a daily limit. There's been some talk about enhancing our credit based lending procedures. So, home loan banks, like credit unions, do make a credit risk analysis.
You know, they underwrite. Loans and the agency may have us fine tune those procedures a bit. There's a chance that the agency will recommend to Congress changing the definition of what is called a long term advance. Right now, a long term advance is any. Advanced longer than five years and the reason that that is important is because if you take an advance out That's longer than five years.
You have to use it for additional housing finance purposes And so if they were going to try to strengthen a nexus to housing one Idea that was discussed during this process was to reduce the duration of a long term advance They may also require Members to undergo an ongoing housing asset test. What does that mean?
When a member joins the Home Loan Bank System, they have to have 10 percent of their assets in mortgage related assets. What the agency may be considering, it could be in this report, is recommending to Congress that that be an ongoing test of some sort. They might also try to get that done through the regulatory process.
There's a whole host of things that could come out of this report that frankly run counter to much of what the agency heard during the process. They wouldn't be additive to the system. They'd actually work to reduce the impact that the system has for its members. So, just as credit union advocacy relies on credit union members to speak for the credit union system, it's going to be really important for home loan bank members.
Credit unions, banks, insurance companies, CDFIs to advocate for the home loan bank system. As I said for so many years, folks in the credit union system tired of hearing me say it, I'm sure. If those that are most invested in the system don't speak for it, who will? When this report comes out, we're going to need home loan bank members continuing to speak on behalf of the system.
Yeekeng: And to follow up on that what are some maybe examples or maybe some ideas that credit unions can advocate for that?
Ryan: Yeah, so I, listen, I think the important thing to understand is that, you know, when the report comes out, nothing really changes. But in the months and weeks after the report is issued, there's a good possibility FHFA will begin to issue proposed rules. And we're going to need the trade associations, as well as the member organizations, credit unions, banks, insurance companies, CDFIs, to make sure that their voice is heard, address the concerns in those proposals, and from the council perspective, we're going to make sure That we're out there providing some information so folks know what's going on and know how that they can, how they can get engaged.
But, but, you know, to be clear, the publication of this report is going to be the beginning of what we expect will be a fairly long process. So, when it comes out, it'll be important for us to take a look at it. CUNA should take a look at it as well. I expect that there may be some... Who will in Congress, who will perhaps try to write some legislation around it.
You know, given what's going on in Congress right now, I'm not too concerned about the legislation moving. I think what's more likely to happen is that the agency is going to use the regulatory and the supervisory process to effect change. And, and that's where we need credit unions and other stakeholders engaged.
When they see a proposed rule for comment, we need them weighing in. We are going to work to make sure that the supervisory changes are done consistent with the law and that they don't undermine member access to the system. You know, it is interesting for me, as someone who advocated for credit unions for 15 years, to be in this position because it's so similar.
And that's the thing that I think I'd want credit unions to know. You know, at the end of the day, what's happening at FHFA and how we approach it isn't that different than how we would approach NCUA or CFPB or any other agency. We're going to work in Congress to make sure that the law supports how we serve our members.
We'll work at FHFA to make sure they're not impeding access to home loan banks through over regulation. We're going to keep an eagle eye. On the supervisory process to make sure that they're not using its cloak to extort action that isn't supported by law or regulation, you know, in a lot of respects, it's the same game, just a different regulator, but for credit unions, it's an additional regulator.
Who could very well change how they access liquidity. So it's really important for credit unions to remain engaged.
Yeekeng: And you may have touched on this briefly before, but what will happen after the agency publishes its report?
Ryan: Yeah, so the day the agency releases the report and the day after, nothing's going to change. Remember, the report is going to be a series of recommendations. What I think is really important for us to keep an eye on is... is what comes after that. What does the agency say are its priorities? What are they going to address first?
And I think we need to be cognizant of the political environment that we are in. Legislation is unlikely to move through Congress, so we'll keep a focus on the regulatory and the supervisory process as they move forward. This is going to be a long process. I think, frankly, this probably This report will probably produce about a decade's worth of work for, not just the home loan bank system, but for all of its members.
Yeekeng: Alright, so anything else you wanted to add to wrap things up? Any closing statements?
Ryan: Just, I would just say that, you know, on behalf of the home loan banks and certainly the Council, we appreciate the partnership that we have with Credit Union National Association and the credit unions that are members of their home loan bank and we look forward to working with you in the future.