To the Editor:
The In Focus column in your July 15 issue concerning the pending Federal Home Loan Bank legislation (49 Pages of Changes from Treasury Sandbag Home Loan Bank Bill), reflects a serious misunderstanding of the Department of Treasury's position by some who hold different views.
First, it is incorrect to say that Treasury's "overriding concern with the bill" is that it would allow the Home Loan banks to fund "rural and inner-city development loans." On the contrary, we support allowing the banks to make advances to fund community development loans targeted to distressed areas, particularly in rural and inner-city communities. We have objected to a broad and unfocused expansion of the banks' mission that would turn the Federal Home Loan Bank System into an all-purpose provider of government subsidies.
Second, it is incorrect to say that we have recommended that system members "only be allowed to borrow ... for 'unexpected or exigent liquidity needs.'" We continue to support borrowing to originate or carry residential mortgages, as well as for community development lending. We believe that the system should not be used as a substitute for the normal liquidity provisions that members should maintain for themselves from market sources.
Third, it is incorrect to say that we have proposed limiting advances where a member's total borrowings from the system exceed "the amount of community development loans it held." We have proposed that advances in general be limited to 25% of the total amount of residential mortgage loans held by the member, and that advances for community development lending be permitted up to 100% of the amount of community development loans held by the member.
The assertion that the 25% limit would "dramatically change the ability of existing members to use the system," is contrary to the facts. Currently, the overall ratio of all outstanding advances to residential mortgage loans held in portfolio for all system members is about 17%. While some of the very largest members - those who presumably are best able to access normal market sources of funding - might presently exceed 25%, such a limit would, on a systemwide basis, be more permissive than current practice.
The extravagant charge from the system insiders that Treasury is engaging in a "hoax" reflects an unwillingness to come to grips with the need for reforms in the system to ensure that its operations are safe and sound and dedicated to the public purposes for which it was established. This attitude does not serve the system well and should be a matter of concern to all taxpayers.
Sincerely,
John D. Hawke Jr.
Under secretary of the Treasury
for domestic finance
