The Federal Housing Finance Agency’s (FHFA) review of the Federal Home Loan Bank System (FHLBanks) is a catalyst in the ongoing affordable housing crisis I see in Chicagoland communities, and across America, every day.
I am the chairman and CEO of Devon Bank, a roughly $500 million, 78-year-old community bank headquartered on the North Side of Chicago that has many customers who have limited home financing options, those who would be considered to be “underbanked.”
I am also an elected Illinois member director of the Federal Home Loan Bank of Chicago (FHLBank Chicago), a position I sought because I had come to think highly of my FHL bank and what it does for my community and my employer. My view has strengthened as I have come to know those who work at FHLBank Chicago and experienced more of what the bank does.
Throughout the FHFA’s review of the FHLBanks, the charge has been made that the system is not doing enough to promote affordable housing. However, what constitutes “enough” has not been defined in the Federal Home Loan Bank Act.
There is no question that the U.S. has an extensive housing crisis, one that the FHLBanks should help address. However, there also should be no question that federal housing-involved banks are helping address the crisis and that the crisis is too large to be solved by them alone. By all accounts, the system is the largest long-term private funder of affordable housing in the country.
I personally witness the challenges of affordable housing in my community every single day. Grants and programs such as what FHLBank Chicago offers are fundamental to creating housing opportunities in local, diverse neighborhoods such as the communities Devon Bank serves.
It is one thing to denigrate the FHLBanks by stating that the amount it contributes to statutory affordable housing programs is not enough. However, it is Congress, not the FHFA, that decides how much federal housing-involved banks are required to contribute to affordable housing. Despite the current target being set at 10% of its earnings, the system still funds more affordable housing than any other private entity in the U.S. over the long term.
Locally, FHLBank Chicago has increased investment in grants such as the Community First Diverse Developer Initiative. The organization aims to go beyond what is expected of it through its Affordable Housing Program general fund and Downpayment Plus Programs in an effort to combat the affordable housing crisis.
Congress gave the banks a mission and a name. It then expanded the mission but not the name. The mission is to help provide housing finance; funding for small businesses, farms and agribusinesses; and community development. Supporting small businesses and farms — and the jobs they create that provide the means for people to buy or rent homes — and supporting the community institutions that make communities livable are a necessary adjunct to financing homes. The FHLBanks is fulfilling this mission.
I also believe that the system has untapped potential. I believe, as a cooperative, the FHLBanks should be able to create more products and services that tap into this cooperative nature and can further address housing concerns. I also, however, believe that the options available to maximize this potential would be difficult to do within the existing system due to the regulatory and systemic constraints that are not welcoming to anything that might look like innovation.
As the entire financial industry is learning, the need to innovate faster to help our communities is of fundamental importance. This is not a comment on safety and soundness, but rather one about making decisions faster to avoid being an obstacle to solving the aforementioned issue.
Is it the FHFA’s role to force, facilitate, encourage, or watch and hope for increased efficiencies? I hope that the review findings will not only acknowledge the progress that has been made, but that there is more opportunity to support the FHLBanks in continuing to address the very mission that Congress gave the system more than 90 years ago.
Dave Loundy is chairman and CEO of Devon Bank.