WASHINGTON Sen. Elizabeth Warren called on the Federal Housing Finance Agency this morning to provide details of Sallie Mae’s funding through the Federal Home Loan Banks—reserved by law for mortgage financing—in light of the student loan giant’s growing dominance in the market for private student loans.
The Massachusetts Democrat questioned whether low-cost advances provided by the FHLBs is subsidizing “highly-profitable private student lenders” like Sallie Mae, which competes with thousands of credit unions and banks in the private student loan market.
“As you know, Congress established the Federal Home Loan Bank System to serve as a reliable source of funding to local banks and other community lenders that offer families home mortgages,” Sen. Warren wrote in a letter delivered this morning to Edward DeMarco, director of the FHFA, which regulates the FHLBs.
Warren noted that Sallie Mae has an $8.5 billion line of credit with the FHLBs, enabling it to borrow at rates as low as 0.23% to 0.34%, then lend the funds to students at rates 25 times to 40 times higher, even while Sallie doesn’t appear to be making any mortgage loans. “It is deeply worrisome that the Federal Home Loan Banks may be undermining their mission by extending billions of dollars in cheap credit to private student lenders,” Warren wrote.
Warren, a member of the Senate Banking Committee, called on DeMarco to provide her office with details of the line of credit provided to Sallie Mae; details of other credit provided financial institutions “substantially engaged” in private student lending; and all guidance provided to FHLBs on funding private student lenders.
