September 8, 2008
Dear Members,
As you may be aware from news reports over the weekend, the United States Treasury and the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac have been put into
conservatorship. This means that the FHFA, the new regulator of the Federal Home Loan Banks, will manage Fannie Mae and Freddie Mac as their
conservator in an attempt to stabilize their financial condition and their ability to support the secondary mortgage market and the housing
recovery.
The announcement on Sunday was focused entirely on addressing concerns
about Fannie Mae and Freddie Mac. However, mentioned in the announcements was the establishment by Treasury of a backstop credit facility for
Fannie Mae, Freddie Mac and the Federal Home Loan Banks. This arrangement, described in the attached documents, is intended to assure investors
in agency debt that liquidity will be provided by the Treasury as and if needed. Our Board of Directors, along with the boards of the other
FHLBanks, will be asked on Tuesday at a previously announced special meeting to approve participation in this backstop credit facility in the unlikely
event that it will be needed.
The inclusion of the FHLBanks in this credit facility is not an
indication of weakness – rather it is intended to provide assurance to investors in our debt, our members and other constituents that the
FHLBanks have the same level of financial support from Treasury as the other GSE’s as provided in the Housing and Economic Recovery Act of
2008. In that regard, please note the following brief statement that was included in the remarks made by the director of FHFA, James Lockhart:
One of the three facilities [Secretary Paulson] will be
mentioning is a secured liquidity facility which will be not only for Fannie Mae and Freddie Mac, but also for the 12 Federal Home Loan Banks that
FHFA also regulates. The Federal Home Loan Banks have performed remarkably well over the last year as they have a different business model than Fannie
Mae and Freddie Mac and a different capital structure that grows as their lending activity grows. They are joint and severally liable for the Bank
System’s debt obligations and all but one of the 12 are profitable. Therefore, it is very unlikely that they will use the
facility.
The announcement made Sunday, while indicative of the depth of concern
about the housing and mortgage markets and truly of historical significance, should not cause concern about the current strength or continued
viability of the Federal Home Loan Bank of Des Moines or of the FHLBank System. We have demonstrated over the past year that we have an
extraordinary ability to meet the liquidity and funding needs of our members, more than doubling our advances during that period. Unlike Fannie
Mae and Freddie Mac, our cooperative structure has provided the capital to support this growth and we have performed our mission
profitably.
I regard this announcement as a positive step in returning our borrowing
costs to more typical levels and an indication that our new regulator understands and supports the cooperative structure and unique mission of the
FHLBanks. I am confident that we will continue to perform a vital role in supporting our member financial institutions and the role they will
play in the eventual recovery of the housing markets and, indeed, the economy of our nation.
Statements and Q & A
