A prominent industry group cautioned against broadening mortgage-purchase programs, arguing that unchecked expansion could amplify credit, interest-rate and liquidity risks within the financial system. The group framed its warning around the need to avoid market distortions that displace private capital and weaken underwriting standards, urging policymakers and institutions to prioritize targeted support over blanket buying. It emphasized that any increase in public or quasi-public mortgage acquisition should be contingent on strengthened risk-management frameworks, clear exit strategies and rigorous stress testing to protect balance sheets and preserve market functioning without creating moral hazard.
At the same time, the group pressed for modernization of membership rules and the institution of annual lending reviews to improve governance and oversight. Modernized membership criteria would better reflect current market participants and distribution channels, including nonbank originators and technology-enabled lenders, while safeguarding risk allocation. Annual lending reviews, coupled with enhanced data reporting and transparency, were recommended to identify concentration risks, assess underwriting integrity and ensure consistent compliance. Together, these measures aim to balance necessary liquidity support with prudent risk controls and accountability.
Key points:
– Caution on expanded mortgage purchases: Warns against broad buy programs that could create systemic risk and crowd out private capital.
– Risk-management prerequisites: Calls for strengthened stress testing, exit strategies and enhanced governance before any expansion.
– Modernized membership: Urges updating who participates to reflect current market structures while maintaining protections.
– Annual lending reviews: Recommends regular, standardized reviews and improved data transparency to detect concentrations and underwriting problems.
You can read this full article at: https://www.housingwire.com/articles/chla-fhlbank-membership-imb/(subscription required)
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