yenmeng t1_izxpueg wrote on December 12, 2022 at 5:02 PM

Hi Cornelius, quick question about the eligibility criteria. Does FHLB assess the underlying mortgages that members are funding? I believe a similar program in Canada exists (NHA MBS/CMB program) however there are very stringent requirements on what can and cannot be funded.

ProfBU OP t1_izxqif3 wrote on December 12, 2022 at 5:06 PM

FHLBs do not underwrite mortgages. They take them as collateral.

yenmeng t1_izxrna0 wrote on December 12, 2022 at 5:14 PM

Thanks! Isn’t there a concern that the collateral being held is low-quality though i.e a similar situation to the ‘07-08 crisis? Another question - how can an institution qualify to become a FHLB member? Can anyone apply or are there some sort of capital requirement?

ProfBU OP t1_izxu3ec wrote on December 12, 2022 at 5:29 PM

FHLBs need not worry about quality because they pre-empt the FDIC. That's a real problem!

To apply for membership you must be a bank, credit union, insurance co. or CDFI. Helpful?

yenmeng t1_izxyig8 wrote on December 12, 2022 at 5:57 PM

Very interesting, this has been insightful. Thank you!