Here are 3 major misconceptions about the Home Loan banks

• Key insight: The Federal Home Loan Bank System is a vital part of the country’s housing market, but over the years, misunderstandings and misleading statistics have muddied the picture when it comes to assessing their importance.
• Supporting data: The first misconception involves a statistic cited repeatedly at a recent hearing before the House Financial Services Subcommittee on Housing and Insurance: that 42% of Federal Home Loan bank members had not reported originating a single mortgage over a five-year period.
• Forward look: Last week’s congressional hearing made clear that there is bipartisan interest in ensuring the Home Loan Bank System continues to fulfill its mission.

It is not often that the Federal Home Loan Bank System has an opportunity to explain directly to Congress how it supports communities across the country. A recent hearing before the House Financial Services Subcommittee on Housing and Insurance offered that opportunity, and it was encouraging to see members engage on the future of the system.

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Congressional oversight can strengthen the Federal Home Loan Bank System. The hearing underscored both the value the system delivers and the need to correct several misconceptions that continue to shape the debate.

The first misconception involves a statistic cited repeatedly during the hearing: that 42% of Federal Home Loan bank members had not reported originating a single mortgage over a five-year period. It is a striking figure, but it does not tell the full story.

That statistic comes from Home Mortgage Disclosure Act data, which captures mortgage originations only for institutions that meet specific reporting thresholds. More than 95% of member banks are small, community-based lenders, and many serve local housing markets at a scale that may fall below those thresholds.

HMDA also does not capture the purchase and funding of existing mortgages, investments in mortgage-backed securities, or the full range of housing finance activity undertaken by many institutions, including construction lending and multifamily lending. Looking at Home Loan bank membership only through HMDA-reported originations leaves out significant parts of how housing finance works in practice.

Mortgage origination matters, but it is only one part of a broader housing finance ecosystem. If the goal is to understand whether member banks support housing, the better question is whether they hold and finance housing assets that sustain mortgage credit in their communities.

That leads to the second misconception concerning the system’s nexus to housing. Congress designed the Home Loan Bank System to provide liquidity against housing-related assets, which keeps the system tied to housing finance even as markets, business models, and institutions evolve — and the housing finance markets have evolved considerably since the system was founded in 1932.

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Members support housing in different ways because they serve different markets. Some originate mortgages and hold them in portfolio. Others sell mortgages into the secondary market, including through Federal Home Loan Bank Acquired Member Asset programs, while retaining servicing to preserve the customer relationship. Others support housing through mortgage-backed securities, home equity lending, construction lending, multifamily lending, and other forms of residential finance.

The common denominator is collateral. Every advance, which is a secured loan from a Home Loan bank to a member — whether a large bank, small bank, credit union, insurance company or Community Development Financial Institution — must be fully secured by eligible collateral. At the end of the first quarter, 96% of all collateral securing Home Loan bank advances consisted of single-family whole loans or other real estate-related assets. That is the housing nexus Congress established for all members, and it is how the system supports housing finance well beyond the point of mortgage origination.

The third misconception concerns CDFIs, which Congress made eligible for Home Loan bank membership nearly two decades ago because it recognized the value of connecting mission-driven lenders to a dependable source of liquidity.

There should be broad bipartisan support for expanding CDFI participation. Yet only a small number of CDFIs are members today, not because they lack need, but because current law and regulation limit how much value they can derive from membership.

In 2024, the Federal Home Loan Bank System proposed a set of reforms to Treasury that would expand eligible collateral, improve access to Acquired Member Asset programs, modernize the treatment of Low-Income Housing Tax Credit collateral, and allow the CDFI Bond Guarantee Program to support Home Loan bank advances. Those changes would help more CDFIs use Home Loan bank liquidity to finance affordable housing and community development, and they remain worthy of consideration.

Last week’s hearing made clear that there is bipartisan interest in ensuring the Home Loan Bank System continues to fulfill its mission. That conversation should continue, but it should be grounded in how the housing finance ecosystem functions rather than in isolated statistics or inconsistent assumptions.

For more almost 100 years, the Federal Home Loan banks have evolved alongside the housing finance system while remaining true to their mission: providing reliable liquidity that helps members finance homes, strengthen communities, and expand economic opportunity. That mission remains as important today as it was in 1932.