WASHINGTON - The Federal Housing Finance Board is expected to unanimously approve a rule next week that would force the Federal Home Loan banks to register with the Securities and Exchange Commission, several sources said Thursday.
The agency unexpectedly an-nounced late Wednesday that it would vote June 23 on the issue, which has roiled the Home Loan Bank System for two years. Most observers had assumed that Alicia Castaneda, who became the board's chairwoman just two months ago, would take more time or possibly even overhaul the plan.
But the board's members have apparently struck a compromise. Industry officials have not seen the details, but some said the rule could interfere with talks between the banks and the SEC. Others speculated it could prompt a lawsuit.
"We have made tremendous progress with the SEC, and the resolution of the issues with the SEC has been moving along at a good pace," said John von Seggern, the president of the Council of Federal Home Loan Banks. "I'm concerned about the Finance Board pushing this issue."
The final rule is expected to grant the 12 Home Loan banks at least one victory: an agreement with the SEC that the banks' stock would be treated as equity, not debt.
The rule also is expected to clarify that the SEC would do nothing to disrupt the system's cooperative nature. The board also is assuring people that stock registration will not cost the banks millions of dollars or disrupt their debt issuances, two problems a First Manhattan Consulting Group study raised last year.
But perhaps the most fundamental question is whether the Finance Board has the legal authority to force the Home Loan banks to register with the SEC. The final rule is expected to include a legal memorandum on the subject.
America's Community Bankers has led the fight against the registration proposal; it released an independent opinion from the law firm Venable LLP on the original proposal, released last year. The opinion argued the board may not force the banks to "voluntarily" register with the SEC when they have a statutory exemption, and that the board may not delegate its authority to mandate disclosures to another agency.
Many expect ACB to sue the Finance Board unless the final rule is significantly different than the proposal. A spokesman for the trade group said Thursday that it was "surprised and dismayed" by the board's plan to move forward.
Edward Yingling, the executive vice president of the American Bankers Association, said it also will be interested to see the Finance Board's legal analysis. The ABA is concerned about possible future disruptions to the system.
"Our concern has always been that five or six years from now we could find ourselves in a situation, in ways we cannot foresee now, that the SEC could cause the Home Loan Bank System real problems," Mr. Yingling said. "It's one thing to say we can work it out with the SEC now, but once the SEC has this kind of authority, you don't know how it will play out."
Several sources said they expect the board vote to be uncharacteristically harmonious.
Though two board members, Franz Leichter and Allan Mendelowitz, had publicly argued with former Chairman John Korsmo on elements of the proposal, including whether the board had the legal authority to act, sources said the two have been working closely with Ms. Castaneda on the compromise.
A Finance Board spokesman would not discuss the details of the rule. The vote was scheduled because "Chairman Castaneda believes no one is served by continued uncertainty about the issue," the spokesman said.
A vote approving the rule would be a significant victory for the Bush administration's policy on government-sponsored enterprises.
Two years ago the administration first publicly advocated requiring all of the housing GSEs to register with the SEC. Fannie Mae and Freddie Mac entered into a voluntary agreement that year, but most of the Home Loan Bank System actively opposed the move.
Pending legislation to overhaul GSE regulation contains a provision that would require the Home Loan banks to register with the SEC, but would also require the SEC to take the system's unique characteristics into account.
