The Department of Housing and Urban Development is proposing substantive changes to the $178 billion-asset Federal Home Loan Bank system.

The proposals were contained in a report to Congress which was the last of five Congress required from the FHFB, Government Accounting Office, Congressional Budget Office and a committee of system stockholders. It drew praise from some in the mortgage lending industry, including the Savings and Community Bankers of America.

But while pleased with it, the trade group still thought the report needed more detail.

"We recognize that the HUD report is largely directional and that some key issues, such as easing the impact of the $300 million annual flat tax to finance [the Resolution Funding Corp.] are not addressed with specificity," said Paul A. Schosberg, SCBA president. HUD's report said Congress' intention in imposing the REFCorp. obligation was to ensure the thrift industry bore part of the cost of resolving failed thrifts, and added that changing the $300 million funding level would cause political problems.

HUD's basic recommendations also include:

* Imposing a specific mandate for low-and moderate-income lending and community development lending;

* The FHLB system should be restructured so its stock may be publicly traded to provide the system with a permanent source of capital; and

* Qualified thrift lender status should be removed as a condition of access for advances for savings associations, and that FHLB stock purchase rules be revised so there is a level playing field of all members of the FHLB system, specifically for commercial banks and credit unions.

Congress required that HUD respond to 14 specific questions related to the FHLB system's safety and soundness and public purposes. Among its conclusions, HUD found that:

* Determination of stock purchase and capital requirements for FHLBs should be based on a risk analysis like the new capital standards for Fannie Mae and Freddie Mac;

* FHLBs should not be allowed to purchase residential mortgages or loans, or loan participants secured by residential real estate from member institution - or to securitize mortgages. But their role in lending for low-mod multifamilies should be expanded, possibly by having the system act as a clearinghouse to facilitate the sale of multifamilies between members; and

* Authority for FHLBs to provide warehouse lines of credit should not be granted, nor should the authority to engage in direct lending for housing construction.

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