Elizabeth Warren Questions Top Biden Official About Use Of Federal Money For Affordable Housing

5 months ago

At today's Senate Banking Committee hearing, Sen. Elizabeth Warren (D-MA) questioned Sandra Thompson, Director of the Federal Housing Finance Agency, about the U.S. housing crisis.

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Transcript

00:00 Thank you, Mr. Chairman. So in 1932, Congress created the Federal Home Loan Bank System

00:06 to tackle the biggest housing crisis of the last century, the Great Depression.

00:11 And the basic idea was simple. The federal government offered help in the form of an implied government guarantee,

00:17 favorable regulatory treatment, and special tax status.

00:22 And then in return, the FHLBs would provide liquidity to their members to support housing and community development.

00:30 Today, we are in the middle of another housing crisis. By some estimates, we are short 7 million housing units nationwide.

00:38 But in this critical moment, the FHLBs are missing in action on their affordable housing mission.

00:46 Last month, the Congressional Budget Office released a report that, for the first time, put a number on how much the FHLBs receive in public subsidies.

00:57 In fiscal year 2024 alone, that number was a whopping $7.3 billion.

01:06 Director Thompson, in 2023, how much of these public subsidies did the FHLBs spend on affordable housing programs?

01:17 I think it was approximately $390 million. I think $350 was...

01:22 OK, $390 million. So that means the vast majority of the subsidies the federal government poured into the FHLBs

01:32 went somewhere other than to affordable housing. Only a tiny fraction went to affordable housing.

01:39 So where did the taxpayer money go? Director Thompson, in that same year,

01:44 how much did the FHLBs spend on dividends for their members, like banks and insurance companies?

01:51 Approximately $3.4 trillion.

01:53 Billion. Billion. Billion. I'm sorry. B. Bad enough. OK.

01:58 All right. So just so we're clear here, the FHLBs spent eight and a half times as much on dividends to their members

02:09 than they did on affordable housing. I think that's right. Just the math here.

02:14 But not all of those federal dollars, those taxpayer dollars, went to dividends.

02:19 There's still some money left over.

02:21 According to the GAO, the FHLBs lent tens of billions of dollars to prop up Silicon Valley Bank,

02:30 Signature Bank and First Republic Bank before they failed.

02:35 Director Thompson, FHFA is the primary regulator for the FHLBs.

02:43 Do you agree that it is important for the FHFA to clarify that the mission of the FHLBs is to provide liquidity

02:54 for housing and community development, not simply to prop up failing banks and hand out dividends?

03:01 Absolutely. Thank you for the question, Senator.

03:04 We conducted a yearlong review of the home loan bank system.

03:09 We conducted 17 listening sessions around the country, and we heard exactly that,

03:14 that the home loan banks are very -- they have a dual mission.

03:17 One is to provide stability and liquidity to their members, but the other is to support the communities

03:25 that they live in through affordable housing development and community development.

03:29 And there is a huge affordability issue.

03:33 There are huge supply issues, and the home loan banks are well positioned to do a lot more.

03:38 And that's one of our recommendations from our report.

03:40 And I appreciate that.

03:41 It's not enough to be well positioned if they are taking the money and then not spending it to accomplish that.

03:47 So I think clarifying the mission of the FHLBs is an important start.

03:53 But I think we also need to take a look at who lines up for these federal subsidies.

03:58 Remember, these government subsidies are to promote housing.

04:02 But in the last five years, five full years, 42 percent of FHLB members did not originate a single mortgage, not one.

04:14 Forty-two percent.

04:15 So how did this happen?

04:18 Well, it turns out, under the current rules, members only need to hold at least 10 percent of their assets

04:23 in residential mortgage loans at the time they apply to join a FHLB.

04:29 Once you're in, you're in, and you can get out of the housing finance business while you take advantage of these government subsidies.

04:38 Director Thompson, should the FHFA change the rules so that members must hold at least 10 percent of their assets in residential mortgages

04:47 on an ongoing basis in order to remain eligible for FHLB financing?

04:54 That was one of the recommendations in our report.

04:56 We are going to promulgate rulemaking sometime this year to talk about membership,

05:01 one, to define what the role is of membership, and to also ask questions about what that threshold should be,

05:11 because you will have a situation like one of the three bank failures,

05:16 where you start out with the 10 percent to meet the requirement, and then the bank's business model changes,

05:23 and there's no ongoing checks for them to access the home loan bank system.

05:27 So that is rulemaking. It'll be very transparent, and we're looking forward to engaging in that discussion.

05:32 Well, I strongly urge the FHFA to issue its proposed rulemakings to address the FHLB's mission and membership as soon as possible.

05:42 The FHLB should be tackling our nation's housing crisis,

05:46 not doling out corporate welfare to these giant banks and to members that aren't even in the housing business.

05:53 Thank you. Thank you, Mr. Chairman.

05:54 Senator Vance, if I may.

Elizabeth Warren Questions Top Biden Official About Use Of Federal Money For Affordable Housing

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