Magazine article American Banker

GAO Proposal Offers Relief for Some Home Loan Banks

Magazine article American Banker

GAO Proposal Offers Relief for Some Home Loan Banks

Article excerpt

WASHINGTON - Some Federal Home Loan Bank member institutions could see their dividends skyrocket while others could see them plummet if Congress follows the advice of the General Accounting Office.

Home Loan banks that lend large sums to member thrifts now pay a larger portion of the system's charges for the thrift cleanup. The GAO said the burden of repaying the bonds issued by the Resolution Funding Corp., or Refcorp, should be redistributed.

"These changes, in the long term, can ensure the continued stability and efficiency of the Home Loan Bank System and its ability to continue providing liquidity to home mortgage lenders," said GAO senior economist Edward J. DeMarco.

$300 Million Annual Payment

The system pays $300 million annually toward Refcorp obligations, and is slated to do so for the next 38 years.

Currently, each of the 12 district banks contributes 20% of its income toward the $300 million payment. If there is a shortfall, each contributes more, based on a formula that weighs the amount of advances it made to member institutions insured by the Savings Association Insurance Fund.

Options Offered

The San Francisco bank paid 37% of the $129 million shortfall last year, while the Boston district bank paid just 1.7%, the GAO said. Those charges greatly affected the dividends that were paid to district bank stockholders - individual thrifts and commercial banks.

The GAO recommends changing that system, and gave Congress three options to consider.

One choice would be to keep the 20% contribution from each district bank, but pay for any shortfall by charging each district bank a percentage of its assets, income, or net worth.

Another option is changing the $300 million payment to a flat 20% charge each year. The GAO reasons that in some years, less that $300 million would be collected, but that in others, more than $300 million would, eventually paying the entire Refcorp bill. …

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