Housing reform is still too hot to handle for members of Congress getting ready to ramp up their campaigns for re-election. The issue has also seemed to lose some steam as Fannie Mae and Freddie Mac started churning out profits for the federal government due to an improved housing market and money from legal settlements with bankers. Though many would say that the crisis has now passed, this is precisely the time to get serious about a reform effort. To accomplish true reform, we must take into consideration something that has been conspicuously absent from the debate: the future of the Federal Home Loan Bank system.

To reform Fannie and Freddie without also reforming the FHLB system is to forget the push-pull dynamic in the lending market. Home Loan banks perform an essential function by providing low-cost funds to financial institutions in the form of advances. This promotes lending and pushes dollars into the economy. Fannie and Freddie then pull that funding through the economy using their loan purchases, guarantee programs and securities. It is simply a pipeline with a number of access points. If you want to better manage the flow of oil through a pipeline while preventing a spill and controlling your maintenance costs, simplify the number of inputs and outputs.

To place this into action, the 12 Federal Home Loan banks could be reduced to a smaller, well-functioning few. Because of advancements in technology, it would be possible to divide them inhalf, or even into Eastern, Midwestern and Western banks that include Alaska, Hawaii, and the U.S. Territories. The savings from reduced operating costs and reduced risk from geographic diversity could translate into lower costs for advances and higher dividends for member banks.

A streamlined Home Loan Bank system is unlikely to affect mortgage rates, but it might encourage community banks to lend more. Simply put, if a bank is paying less on advances from its Home Loan bank then it conceivably will have more money available to lend in its communities.   

Improving access to credit should be the goal of all policymakers. Let’s not forget that the American dream of homeownership is what makes our nation different from every other one on earth. Owning a home remains the hoped-for achieve­ment of a large percentage of our nation’s population. Moreover, the housing market creates millions of jobs directly and millions more indirectly in all 50 states. We need to restore the housing market to its vibrancy so that more of our citizens can pursue their version of this dream.

Thad Woodard has served as president and chief executive of the North Carolina Bankers Association and its predecessor organizations since June 1978.