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educe the principal balance of Treasury’s investments in the enterprises. 46 Additional Government Support The enterprises also benefited from extraordinary government measures to support the housing market overall. Since September 2008, the Federal Reserve and Treasury have purchased more than $1.3 trillion in enterprise MBS, and the Federal Reserve has purchased an additional $135 billion of bonds issued by the enterprises. 47 The Federal Reserve became the predominant purchaser of MBS during its purchase programs, and its purchases helped to prime the nation’s housing finance system. 48 As of the second quarter of 2013, the enterprises currently do not require additional government support. Treasury’s last purchase of enterprise MBS, through the GSE MBS Purchase Facility, was in December 2009, and the Federal Reserve last purchased MBS and bonds from the enterprises in March 2010. 49 FHLBank System The FHLBanks are GSEs, federally chartered but privately capitalized and independently managed. The 12 regional FHLBanks together with the Office of Finance, the fiscal agent of the FHLBanks, comprise the FHLBank System. All FHLBanks operate under the supervisory and regulatory framework of FHFA. 50 FHFA’s stated mission with respect to the FHLBanks is to provide effective supervision, regulation, and housing mission oversight to promote the FHLBanks’ safety and soundness, support housing finance and affordable housing, and facilitate a stable and liquid mortgage market. 51 The FHLBank System was created in 1932 to improve the availability of funds for home ownership and its mission is to provide local lenders with readily available, low-cost funding to finance housing, jobs, and economic growth. 52 The 12 FHLBanks fulfill this mission by providing liquidity to their members, resulting in an increased availability of credit for residential mortgages, community investments, and other housing and community development services. 53 The FHLBanks are cooperatives that are owned privately and wholly by their members. Each FHLBank operates as a separate entity within a defined geographic region of the country, known as its district, with its own board of directors, management, and employees. Each member of an FHLBank must purchase and maintain capital stock as a condition of its membership. 54 FHLBank members include financial institutions such as commercial banks, thrifts, insurance companies, and credit unions. 55 Figure 16 (see page 46) provides a map of the districts of the 12 FHLBanks. The primary business of the FHLBanks is to raise funds in the capital markets by issuing debt, known as consolidated obligations, through the Office of Finance and to use the consolidated obligations to provide their members with loans, known as advances. 56 The interest earned on advances less the interest owed on consolidated obligations is the FHLBanks’ primary source of earnings. 57 In the event of a default on a consolidated obligation, each FHLBank is jointly and severally liable for losses, which means that each individual FHLBank is responsible for the principal and interest on all consolidated obligations issued by the FHLBanks. 58 However, like the enterprises, the FHLBank System has historically enjoyed benefits (e.g., debt costs akin to those associated with Treasury bonds) stemming from an implicit government guarantee of its consolidated obligations. 59 The FHLBanks’ Combined Financial Performance The regional housing markets affect the FHLBanks’ demands for advances from member institutions Semiannual Report to the Congress • April 1, 2013–September 30, 2013 45
Figure 16. Regional FHLBanks to fund residential mortgage loans. During the six months ended June 30, 2013, FHLBank members’ borrowing increased but remained below historical levels due in part to a slow economic recovery combined with higher consumer deposits and weakened lending. Further, during this period, the demand for advances continued to show signs of regional stabilization and certain FHLBank members, particularly large-asset members, increased their use of advances. 60 The main source of the FHLBanks’ income is interest earned on advances, mortgage loans, and investments (i.e., assets). 61 Fluctuations in shortterm interest rates affect the FHLBanks’ interest income and expense because a considerable portion of the FHLBanks’ assets During this period, the demand for advances continued to show signs of regional Figure 16. Regional FHLBanks stabilization and certain FHLBank members increased their use of advances. and liabilities are either directly or indirectly tied to short-term interest rates. 62 For the six months ended June 30, 2013, compared with the same period in 2012, short-term interest rates generally decreased, and the FHLBanks had a modest increase—1.9%—in net income. 63 As shown in Figure 17 (see page 47), during the six months ended June 30, 2013, the FHLBanks experienced a marginal increase in profitability, compared with the same period in 2012. Their net income was $1.3 billion for the six months ended June 30, 2013, an increase of only $25 million compared with the same period in 2012. 64 Lower returns on interestearning assets—the main factor influencing net income—largely 46 Federal Housing Finance Agency Office of Inspector General
Page 2 and 3: Federal Housing Finance Agency Offi
Page 4 and 5: Section 3: Lessons for Housing Fina
Page 6 and 7: OIG’s Accomplishments from 2010 t
Page 8 and 9: A Message from the Acting Inspector
Page 10 and 11: insures mortgages against credit lo
Page 12 and 13: Semiannual Report to the Congress
Page 14 and 15: in a number of criminal and civil i
Page 16 and 17: Figure 3. Scoring of Investor Quali
Page 18 and 19: and provide for financial consequen
Page 20 and 21: Figure 5. Agreements Between Fannie
Page 22 and 23: 2010 to 2012, but the attrition rat
Page 24 and 25: Figure 8. Estimated Enterprise Aggr
Page 26 and 27: operations that pose the greatest r
Page 28 and 29: poor financial condition, Appalachi
Page 30 and 31: fraud and wire fraud involving a fi
Page 32 and 33: This was a joint investigation with
Page 34 and 35: y falsified, forged, and altered do
Page 36 and 37: Short Sale Schemes A short sale occ
Page 38 and 39: This was a joint investigation with
Page 40 and 41: at Appalachian concealed past due l
Page 42 and 43: indemnification payments that OIG p
Page 44 and 45: the SEC, and others. In July 2013,
Page 46 and 47: Figure 10. Overview of the Enterpri
Page 48 and 49: Figure 12. Enterprises’ Annual Ne
Page 50 and 51: Figure 14. Home Price Index 2011 Th
Page 54 and 55: Figure 17. FHLBanks’ Net Income f
Page 56 and 57: multifamily housing lending busines
Page 58 and 59: The bill would replace the enterpri
Page 60 and 61: mortgage credit. For its part, the
Page 62 and 63: Figure 20. Reform Models and Reform
Page 64 and 65: Multifamily We have also found indi
Page 66 and 67: Based on recent history, a reformed
Page 68 and 69: Figure 26. The Mortgage Servicing P
Page 70 and 71: Even though the FHFA senior examine
Page 72 and 73: assistance to homeowners and to use
Page 74 and 75: positive NPV, then the servicer is
Page 76 and 77: Siloed Practices: Harmonizing Busin
Page 80 and 81: overseen by FHFA. As conservator, F
Page 82 and 83: Interest Rate Swap: An interest rat
Page 84 and 85: References Federal Deposit Insuranc
Page 86 and 87: Department of the Treasury Financia
Page 88 and 89: Acronyms and Abbreviations Agency A
Page 92 and 93: Figure 29. Summary of OIG Recommend
Page 94 and 95: No. Recommendation Report Status AU
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No. Recommendation Report Status AU
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No. Recommendation Report Status EV
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Page 108 and 109:
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Semiannual Report to the Congress
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Page 114 and 115:
Audit and Evaluation Reports with R
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Appendix D: OIG Reports See www.fhf
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Appendix F: Description of OIG Offi
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Strategic Goal 2—Operating with I
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Figure 17. Federal Home Loan Banks
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15 Federal Housing Finance Agency,
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33 Fannie Mae, “Multifamily Busin
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Federal Home Loan Banks Office of F
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to FHFA Scorecard Directive, at 48,
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it is preferable to limit our discu
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Position in the Housing Finance Sys
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144 Fannie Mae, “Comparison of Mu
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157 Id., “Mortgage Servicing,”
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184 Federal Housing Finance Agency,
Page 144 and 145:
Transparency and Certainty for Lend
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