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FINANCE BOARD APPROVES PROPOSAL TO INCREASE
RURAL BANK'S ACCESS TO FHLBANK SYSTEM

The Federal Housing Finance Board today approved proposed changes to its regulations which would make it easier for small rural banks to qualify for membership in the FHLBank System and would increase their ability to borrow from the System once they become members.

Current statutes require FHLBank System members to have at least ten percent of their assets in home mortgage loans, which also can be used as collateral for advances. Depository institutions in rural areas typically have a substantial amount of their assets in farm-related loans and may not have enough home mortgages loans that can be used to qualify for System membership or as collateral for advances. The proposed rule would broaden the definition of "residential mortgage loan" in the Finance Board's membership regulation and the definition of "residential real property" in its advances regulation.

"These proposed changes recognize the fact that rural banks operate in a unique economic environment, which is reflected in their asset portfolios," said Finance Board Chairman Bruce A. Morrison. "One of my goals is to give more banks in rural areas the opportunity to join the System and have more access to advances. This would increase financing for housing and community development in areas that are 'off the beaten path' of the financial services delivery system."

The proposed changes relate to loans secured by farm or business properties on which there is a residence. Currently, these loans can only be considered for membership purposes or used as collateral for advances if the value of the residence on the property is at least 50 percent of the appraised value of the whole property. The proposal would eliminate the percentage requirement and would allow these "combination property" loans to be considered as residential property loans in determining eligibility for membership or collateral for advances, as long as the property includes a permanent structure that is actually used as a residence.

The proposal also would help prospective System members reach the "ten percent of assets" threshold by expanding the definition of "residential mortgage loans" to include community development loans that meet the requirements of the Bank System's Community Investment Program (CIP) or any other community investment cash advance program. This change to the membership regulation would reflect a comparable provision in the advances regulation, which already includes CIP loans within its definition of residential housing finance assets.

The Finance Board proposal is a response to suggestions made by representatives of the FHLBanks, banking trade associations and rural depository institutions on ways to increase lending in rural areas through access to FHLBank System advances. The Finance Board will accept comments on this proposed rule for a 30-day period following its publication in the Federal Register on October 14, 1997.

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The Federal Housing Finance Board is an independent agency created by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and was given supervisory authority for the Federal Home Loan Bank System, a government sponsored enterprise that provides financing for residential mortgages and targeted community development. As such, the Finance Board ensures fulfillment of the System's mission and reviews the financial performance and operating procedures of the System to ensure its safety and soundness.

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