The Federal Housing Finance Agency (FHFA) has received 1,300 comments to a proposed rule that would ban captives from becoming members of Federal Home Loan Banks (FHLBs).
FHFA director Melvin Watt said in a statement before a Congress financial services committee in January that the agency is reviewing and considering the comments.
“Getting input and feedback from stakeholders is a crucial part of FHFA’s policymaking process, and we will carefully consider comments made by members of this committee as well as the public in determining our final rule,” he explained.
“A captive insurance company provides benefits only for its parent company, which itself is often not eligible for FHLB membership. While captive insurers may in some cases be involved in housing finance, allowing them to have access to the FHLB system raises a number of policy issues that are discussed in the proposed rule.”
The proposed rule change, if adopted, will effectively exclude captive insurers from membership to any one of the 12 FHLBs.
The definition of ‘insurance company’, under the proposed rule, would mean a company that has as its primary business the underwriting of insurance for nonaffiliated persons.
This would continue to include traditional insurance companies but not captive insurers. As a result, existing membership of captive insurers would be ‘sunset’ over five years with defined limits on advances.
The last captive to join an FHLB was Redwood Trust’s special purpose captive insurance subsidiary, RWT Financial, in June 2014.
The real estate investment trust’s captive joined the Federal Home Loan Bank of Chicago, to add to its financing and distribution options for residential mortgage loans.
A temporary ban was placed on captives’ FHLB membership following Redwood’s approval in Chicago.
