WASHINGTON — Three senators have unveiled a bill that would allow captive insurance companies to regain full membership in the Federal Home Loan Bank System.

The Housing Opportunity Mortgage Expansion Act, sponsored by Sens. Tammy Duckworth, D-Ill., Tim Scott, R-S.C., and Ron Johnson, R-Wis., would reverse a January 2016 decision by the Federal Housing Finance Agency that restricted certain captive insurers from borrowing from the Home Loan banks. A similar bill was introduced in the House last year by Rep. Randy Hultgren, R-Ill.

The FHFA final rule was aimed at stopping mortgage real estate investment trusts from creating captive insurers to gain Home Loan bank membership and access to low-cost funding from the regional Home Loan banks.

Sen. Tammy Duckworth, D-Ill.
"The FHFA rule in question would gut the Chicago FHLB’s membership and funding source, which could fundamentally impair its ability to support affordable housing options and small business lending," Sen. Tammy Duckworth said. Bloomberg News

The FHFA phased in the membership and borrowing restrictions to soften the impact on the 11 regional Federal Home Loan banks.

"The FHFA rule in question would gut the Chicago FHLB’s membership and funding source, which could fundamentally impair its ability to support affordable housing options and small business lending — two services vital to a strengthening local and state economies," Duckworth said in a Jan. 31 press release.

The Chicago bank's captive insurance members "provide the bank with nearly one-third of its total borrowings," according to the press release.

The Council of Federal Home Loan Banks has not taken a position on Duckworth's bill, according to David Jeffers, the group’s executive vice president.

"The Council does not take a position on proposed legislative changes to membership and we have always maintained that it is Congress alone which determines membership criteria for the Home Loan Banks,” Jeffers said in a statement Jan. 31.

Matt Feldman, president and chief executive of the Federal Home Loan Bank of Chicago, welcomed the introduction of captive insurance bill.

“We appreciate the commitment and leadership of the bill sponsors," Feldman said. "The Federal Home Loan Bank of Chicago is highly supportive of the reinstatement of membership for the captives in our District, all of which were members of the Bank prior to the draft membership rule."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.