Many of the problems being experienced in the economy, especially the housing market, are being blamed on the poor decisions made by the Federal Home Loan Banks, also known as FHL Banks. Fourteen banks, including Fannie Mae and Freddie Mac, comprise the FHL Banks, and a combination of questionable practices and bad business decisions has this group a combined $1.25 trillion in debt. The U.S. government is the only entity currently with a larger debt than the FHL Bank system. As a result, a new housing agency finance plan is being proposed that will attempt to increase regulations on the FHL Bank system and begin to correct many of the current issues.

The new housing agency finance plan has been designed by the Federal Housing Finance Agency. The director of this regulatory agency is former Chief Operating Officer of the Social Security Administration James Lockhart. He was appointed by former President George W. Bush in July of 2008. The ultimate goal of the agency is to restructure the requirements for the capital of the 14 FHL Banks as well as place the investment regulations on them in an attempt to correct the problems that have led to the systems substantial debt and subsequent strain on the housing market.

The focus of the new housing agency finance plan will be FHL Banks Fannie Mae and Freddie Mac. The companies have portfolios that combined value approximately $1.7 trillion. The two companies are also the largest home mortgage providers in the U.S. The Federal Government had already taken control of both companies, after financial trouble was putting the future of both in jeopardy. Combined, Freddie Mac and Fannie Mae lost almost $70 million in just over a year. After a $14 million bailout from the Treasury Department failed to improve the situation, control of both was given to Lockhart’s agency.

In order to achieve the desired results, the main area that the new housing finance agency plan will attempt to address is the capital requirements of the 14 FHL Banks. Essentially, these banks must keep a certain percentage of capital to cushion against losses. When failing to meet these requirements, banks are limited on the number and types of loans they can make. The plan is to classify these banks based on the condition of their capital and to then introduce new regulations and requirements. By catering specifically to the situation faced by each bank in the system, the effectiveness of the plan should increase.

See more:
Federal Housing Finance Agency (FHFA) Boss James Lockhart on Fixing the Housing Market
Federal Housing Finance Agency’s Fiscal Year 2009 Financial Statements
Judicial Watch v. U.S. Federal Housing Finance Agency