How FHLBanks Help Low-Income Housing and Community Development:

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1 Senator Heitkamp, on behalf of the Federal Home Loan Bank of Des Moines and our 74 member institutions in North Dakota, I appreciate the opportunity to appear at your Housing Summit. While North Dakota is blessed with a very strong economy, the rapid growth has precipitated some very challenging issues with respect to affordable housing. I would note at the outset that the Bank appreciates the leadership role you are taking in Congress as the Senate Banking Committee begins the important work of designing a future mortgage finance system for our country. Rural states such as North Dakota which are so dependent on community banks for economic growth face unique challenges in assuring future access to financial products so that homeowners, homebuyers, builders, small businesses and farmers can build thriving communities. As financial markets get more and more concentrated the partnership between the Federal Home Loan Bank of Des Moines and our 1200 members, 95% of which have $1 billion or less in assets, becomes even more important going forward. Our Home Loan Bank has more community banks than any other in the FHLBank System. We understand their needs and the challenges community banks in rural areas face because we work with them every day. The attention you are bringing to bear in the Senate on how rural communities and community banks will fare in access to mortgage credit in the future is critically important. FHLBank Overview The Federal Home Loan Bank of Des Moines is one of 12 regional cooperatives serving North Dakota, South Dakota, Minnesota, Iowa and Missouri. The FHLBanks were created by Congress in 1932 to support America s housing finance system through their member thrift institutions and insurance companies. Since that time, Congress has expanded the mission of the FHLBanks to include support for affordable housing, community development and other forms of community lending, and has expanded eligibility for membership to commercial banks, credit unions and community development financial institutions. The district that we serve is comprised of smaller and more rural communities where agriculture is a leading economic force. Across all economic and credit cycles, FHLBanks serve as the bridge between the community bank on Main Street and the global capital markets. This enhances the financial strength of local lenders so that they can meet the housing finance and economic development credit needs of their communities. Many of our smaller financial institution members would have little or no direct access to the capital markets without the FHLBank system. This regional structure allows each Federal Home Loan Bank to understand the needs of its members and communities and tailor products to those needs. Our Board of Directors has member and independent directors from throughout our five states. In North Dakota we have 74 members represented on our board by Eric Hardmeyer of the Bank of North Dakota, our current board vice chair, and Gerald Eid of Eid Homebuilders as an independent director.

2 Jessica Thomasson of Lutheran Social Services Housing serves as Vice Chair of our Advisory Council and Dan Madler of Beyond Shelter is a also a member of the Council. The Federal Home Loan Bank of Des Moines, as of 6/30, has $46B in assets with $27 Billion in loans (called advances) to our members. Our 74 North Dakota members are approaching $1 billion dollars in advances. How FHLBanks Help Low-Income Housing and Community Development: As you know, the Federal Home Loan Banks also have very active and important housing programs, designed to meet the pressing housing and local economic needs of low and moderate income Americans and neighborhoods. Under the Affordable Housing Program, FHLBanks have awarded over $4.6 billion to create more than 784,000 housing units since the inception of the AHP in Over the same period, the FHLBank of Des Moines has awarded $227 million in AHP grants in its five-state district to fund 42,618 homes. Our North Dakota members have partnered with local non-profits and communities to apply for and receive over $15 million dollars in grants for affordable housing including affordable rental property, home repair and downpayment assistance across the state generating over $176 million in total housing development cost for almost 2800 homes. It should be noted that the grants come from the earnings of the Federal Home Loan Banks, are managed locally and are not taxpayer funded dollars. Community Investment Advance lending since program inception is approaching $64 billion, financing over 800,000 housing units and thousands of economic development projects In 2012 North Dakota members used our targeted Community Investment Advance program, our lowest term rate advance, to fund $1 million in small business loans, almost $10 million in small farm loans and nearly $27 million in various residential loans. Federal Home Loan Bank Mortgage Program As you and your colleagues on the Senate Banking Committee are tackling GSE reform and what mechanisms will provide mortgage credit needs of the country in the future, FHLBanks are ideally suited to play an important role. We are pleased that your legislation recognizes what FHLBanks have done to assist members in originating and funding sound loans in their communities. Federal Home Loan Banks have an excellent track record of working with members to manage risk in the mortgage purchase programs that some FHLBanks have administered for over 16 years. Member financial institutions have recognized that they can rely on their FHLBank to continue to meet the mortgage needs of their communities. North Dakota members also sell us mortgage loans or use FHLB Des Moines to assist in aggregating mortgage loans for sale to Fannie Mae. The Federal Home Loan Bank of Des Moines participates in the Mortgage Partnership Finance program. Nearly 350 Des Moines members use MPF and there are over 1500 system wide.

3 Our North Dakota members have used this program to originate $78 million in loans so far in 2013 and over $181 million in In total, North Dakota lenders have originated 2600 home loans through the MPF programs. The Mortgage Partnership Finance Program generally involves the selling member providing a credit enhancement to the FHLBank that can be called upon if the performance of the pool of loans sold incurs losses above a certain level. The FHLBank of Chicago created the program and administers many aspects of the program for participating FHLBanks. Another MPF variation allows members to sell their loans through their FHLBank to Fannie Mae, although without any risk sharing obligation. An alternative, the Mortgage Purchase Program, offered by a few FHLBanks, essentially involves the creation of a reserve account against the pool of loans sold by the member that is paid out to the member over time depending on the loss experience of the pool. The collective portfolio of mortgage loans held by the FHLBanks in both programs carries a 1.94 percent seriously delinquent rate in comparison to a 6.16 percent seriously delinquent rate for all conventional loans nationwide. Total actual credit losses from mortgages held in portfolio since the program s inception in 1997 have been less than 5 basis points of the average portfolio balances annually. S the Housing Finance Reform and Taxpayer Protection Act of 2013 The Bank welcomes the opportunity to share with you our views on housing finance reform generally, and more specifically on the recently introduced bill S the Housing Finance Reform and Taxpayer Protection Act of We commend you for your extensive efforts in working to achieve a sustainable housing finance system for the future that does not expose the taxpayer to unnecessary risk. S is groundbreaking legislation as it is the first comprehensive, bipartisan proposal. You are to be commended for your leadership is putting forward a detailed program that will serve as the foundation as the legislation moves forward. We are encouraged that your legislation suggests the FHLBanks have a critical role to play in serving their members in the housing finance system of the future. The unique characteristics of the FHLBank System that have made it possible for the FHLBanks to carry out their mission of serving their members and their communities should be maintained in a future housing finance system. The FHLBanks have demonstrated their role as a safe and reliable provider of liquidity throughout the recent financial crisis, and their regional, self-capitalizing, cooperative structure will enable them to serve their members needs in a safe and sound manner. We are pleased that S.1217 recognizes the importance of maintaining a role for institutions of all sizes and contains provisions intended to preserve equal and reliable secondary market access for small and mid-size community financial institutions to help maintain reliable access to mortgage credit throughout all parts of the country. We appreciate that the bill provides different options for the FHLBanks to serve their members as the housing finance system of the future evolves. With the support and guidance of our members, we are open to exploring opportunities to expand our support of community lenders. At the same time, we emphasize the

4 paramount importance of maintaining and protecting our continuing role as a reliable source of liquidity for our members. The Federal Home Loan Bank of Des Moines is working with the other FHLBanks and is conducting an extensive dialogue with our owner/members to see how we can work together in the mortgage finance system of the future. We look forward to working with you as the legislative process moves forward. FHLBanks continues to explore how we can be part of the solution to this challenge.

5 The Federal Home Loan Bank of Des Moines, with assets of almost $50 billion, is a wholesale cooperative bank that provides low-cost short and long-term funding and community lending to nearly 1,200 commercial banks, savings institutions, credit unions and insurance companies headquartered in Iowa, Minnesota, Missouri, South Dakota and North Dakota. Federal Home Loan Banks and their members are the largest source of residential mortgages and community development credit in the United States. 12 Wholesale Banks: FHLB Des Moines is part of the $762 billion Federal Home Loan Bank System. The 12 FHLBanks are wholly owned by their members, receive no taxpayer funding and provide readily available, low-cost funding, known as advances, and other credit products to approximately 7,600 stockholder members. A Cooperative System: Each FHLBank is a cooperative only the financialinstitution members of a particular FHLBank may own the stock of that FHLBank. The stock is not publicly traded and can only be redeemed at par. As cooperatives, each FHLBank conducts its business with member shareholders that constitute a majority of each board of directors. How FHLBanks Help Communities: FHLBank advances enable local lenders to extend affordable credit to their communities to support affordable housing, small business, community development and small farm loans. FHLBank Advances: FHLBank loans to member institutions advances enhance the financial strength of local lenders, providing them with adequate liquidity at competitive prices so that they can meet the housing finance and credit needs of their communities. The outstanding volume of advances is over $425 billion. Since being chartered in 1932, no FHLBank has incurred a loss on advances. How FHLBanks Raise Money: FHLBanks issue debt to institutional investors through the Office of Finance. These products are rated Aaa/AAA by Moody's and Fitch and AA+ by Standard & Poor's. That, coupled with the Banks Government Sponsored Enterprise (GSE) standing, enables them to issue debt at just slightly higher rates than Treasury bonds. FHLBank debt is the joint and several liability of all the FHLBanks.

6 How FHLBanks Help Low-Income Housing and Community Development: FHLBanks conduct two programs designed to meet the pressing housing and local economic needs of low- and moderate-income Americans and neighborhoods the Affordable Housing Program (AHP) and the Community Investment Program (CIP). Affordable Housing Program (AHP) The FHLBanks have awarded over $4.6 billion to create more than 784,000 housing units since the inception of the AHP in Over the same period, the FHLBank of Des Moines has awarded $227 million in AHP grants in its five-state district to fund 42,618 homes. These funds come from the Bank s earnings and are not taxpayer dollars. Community Investment Program (CIP) CIP lending since program inception is approaching $64 billion, financing over 800,000 housing units and thousands of economic development projects Mortgage Programs: FHLBanks offer a variety of mortgage programs that increase competition in the secondary mortgage markets and lower rates for homebuyers by providing FHLBank members new options when selling mortgages.