Thank you everyone for writing in – this has been a great discussion! Unfortunately, I am not able to reply to every question right now. If scheduling allows, I hope to be able to revisit the conversation in the coming days. If you are interested in learning more about my work please follow me on Twitter @ckhurley, DM me on Reddit, or visit my BU profile:

I teach financial services at Boston University School of Law. I served as a bank executive and a senior bank regulator. From 2007–2021, I was an independent director of the Federal Home Loan Bank (FHLB) of Boston. Taxpayers’ money is at stake. They guarantee FHLBs’ debt, exceeding $1 trillion today, a $6.3 billion annual subsidy. FHLB members gain access to cheap funding and dividends, but taxpayers receive very little benefit.

The FHLBs’ regulator, the Federal Housing Finance Agency (FHFA), has taken note of this misallocation of resources and has launched a “comprehensive review” of the FHLBs. Now is the opportunity to reform the mission, operations, and purpose of the FHLBs.

-What are the FHLBs? Why were they created? How are they governed? Who owns them? -How relevant are the FHLBs today? -Should the FHLBs be required to do more to support affordable housing? -Are there other public purposes that could benefit from this unique funding model? -How can increased access to the FHLBs, a unique form of subsidized funding, benefit other sec tors? Think: climate change remediation, infrastructure businesses, the housing supply-chain.

Proof: Here's my proof!

Comments: 161 • Responses: 28  • Date: 

defnotasysadmin148 karma

What question do you think new home owners should ask more often and what question do you think people should ask less?

ProfBU312 karma

Question to ask more: How many years am I going to own the home.

Question to ask less: None...ask as many questions as you can.

Master_El0din105 karma

In your opinion, could the government ever in the future step in and limit the mass purchase of residential homes? Also, do you feel like we will see a sharp decline in home prices in the next year or two? I have a young family and am hoping to see some better opportunities than what is available.

ProfBU109 karma

Not an economist but I'd be surprised if the current trend of declining home prices does not continue for several quarters especially with the Fed continuing to raise rates.

As for limiting bulk purchases, I do not see this in the future. Too disruptive to market forces.

Architeckton11 karma

Already in the works. A bill was introduced this week in Congress.

ProfBU28 karma

My first home was purchased with -0- down payment courtesy the VA and the GI Bill.

How about a similar benefit for a year of national service?

The_Law_of_Pizza81 karma

Hi Con,

I'm a financial services attorney - not in the real estate space specifically, but a lot of my practice overlaps with that and other markets.

A hot button topic today (though perhaps it has always been so) is affordable housing, and how we encourage development of and access to it as a critical resource.

My question for you is this: Do you think that entities like the FHLBs can actually help the affordable housing problem? And if so, how?

I have always been skeptical of traditional mortgage-related "help" offered to consumers, as it appears to me that, while they might help the individual borrower in the short term, these programs ultimately inflate the market such that everyone is stuck with higher prices in the long run.

People tend to calculate the house they can afford by reverse engineering it - they take what they can afford in a monthly payment, and then work it backwards to arrive at a total house value. Thus why interest rates effect the value of housing, as you well know.

So, my concern is that mortgage programs which make it easier for people to bid higher on property just inevitably get baked into the value of all property, and within a short period of time everybody is back to square one as prices have adjusted to include whatever subsidy you've introduced in the system.

Do you see any way around this fundamental problem? In your view, is there a place for mortgage programs and/subsidies in the quest for affordable housing?

ProfBU149 karma

Thanks for this excellent question about affordable housing.

Here's the issue. Congress has mandated 10% of net income for affordable housing. FHLBs treat that at a ceiling rather than a floor. In this public/private partnership why not require 50% of net income for affordable housing? Part of the problem too is the conflict of interest between the member banks that benefit from robust dividends. Also, every dollar of CEO and C-suite compensation undercuts their contribution to affordable housing. All the incentives need to be realigned. Thanks again.

councillleak48 karma

I work in tech Financial Services, and focus specifically on the compliance of eSigning of financial assets.

The FHLBs are a thorn in our side, because while they do generally understand the compliance of accepting eNotes of conforming residential mortgages that are registered on the MERS eRegistry, they seem to have no idea that there are similar security concerns of accepting other collateral types that have been eSigned.

For our perspective, as a technology company that has expertise in eVaulting of all different asset types including Equipment Finance, Commercial Real-Estate, and Ag loans... The FHLBs today are exposed to huge risk of not being able to perfect on the collateral pledged to them that has been eSigned without a complaint vault to hold the Authoritative Copy of the loan/lease as defined by UCC Article 9-105.

How would you recommend we approach the FHLBs to educate them on the risk of fraud, specifically double pledging and other nefarious activities, so that they can promote better lending practices as all types of lenders shift away from wet-signed assets and adopt eSignature without understanding the complexities of doing so compliantly?

ProfBU63 karma

FHLBs have been way late to the e-signature party. They lack any semblance of an entrepreneurial spirit. It will take a stong directive from their regulator, the FHFA, to drag them into the modern era.

ItsShorsey26 karma

How do you see it possible for a regular working class family to afford a home? Housing prices are insane and they want perfect credit regardless of income. Rent prices reduce all savings and make it almost impossible to save for a down payment. It's getting to seem like a pipe dream that will never happen

ProfBU34 karma

Totally get it! It was tough enough before the spike in mortgage rates. Increasing the FHLBs affordable housing quota to 50% would help but it would still be a drop in the bucket. Here's a suggestion for 45 million people who are struggling with the overhang of student debt...allow them to discharge that debt in bankruptcy. student debt is the only debt that is not dischargeable this way. This is before Congress now. Tell Sen. Durbin and Schumer to get off their a...s.

Karamzungu20 karma

Having read “Evicted” this year by Matthew Desmond, I’m curious to know how you feel about housing vouchers and their application? Or do you think a different strategy would be more suitable?

ProfBU26 karma

Limited experience with vouchers. The application process is cumbersome and works against the applicant and is a turn-off for many landlords.

PeanutSalsa13 karma

How does getting a home loan from the FHLB differ from getting one from a bank?

ProfBU27 karma

Only members of FHLBs can borrow from FHLBs. In this sense, it's a very exclusive "club". Borrowing rates from the FHLBs are subsidized by you and me as taxpayers.

The question is, "What benefit do we as taxpayers get in return for our subsidization of the FHLBs?" Currently the answer to that question is, "Nothing".

shaft69697 karma

You keep mentioning the subsidy paid by taxpayers.

According to the FHLB site, they've never incurred a net loss.

Their benefit is using the federal promise to pay, thus getting lesser lower rates.

But how are the taxpayers losing $6+billion per year on this? Can you elaborate on this?

ImDaChineze8 karma

Lets say you have a game where someone draws a random ball out of a bag of 100 balls. If it is white, you get $1. If it is the single Black ball in the bag, you have to pay that person $200. You wouldn’t want to play this game as it doesn’t benefit you much, and over the long run you actually lose money.

Well, someone comes along and says “Hey! I noticed you don’t want to play this game. What if every time someone draws the black ball, I pay it for you for free! So all you do is collect $1 every time its drawn with no risk to you?”

Of course, you love free money so you say yes.

20 new people draw a ball and they’re all white, so the nice person offering to pay if you lose hasn’t actually paid anything yet.

Does that mean the nice person hasn’t given you anything of value?

The nice person assumed the ~10% risk that one of the people would draw a black ball, and at $200 a ball that means they subsidized you $20 roughly.

This is in essence what’s happening here. Taxpayers are bearing the credit risk of these loans without the benefits.

The more detailed answer is that by being able to borrow money with the full backing of the taxable income of the United States, these loans have become seen as essentially “risk-free” and thus the borrowers do not have to pay credit risk. In the same way that someone who has great credit pays a lower rate than someone who’s just defaulted from a couple loans, having a government sponsored wrapper around your loan essentially makes your rate comparable to that which the US government itself borrows at. This is quite unfair, because hey, I would also like to borrow at SOFR MINUS a spread. Why can’t you offer me a 30Y loan at the Current 30y Treasury rate of 3.56%? Why do I have to pay 7%?

shaft69694 karma

Fair. But they allege they've never suffered a loss. So if that $200 never happens, then what?

ProfBU2 karma

Their claim that they never suffered a loss is a ruse. They lend to banks. If the bank fails the FHLB gets to collect AHEAD if the FDIC, in effect sticking the taxpayer with the loss.

ProfBU2 karma

The value of the government guarantee of the FHLBs' debt is at least 50 basis points. 50bps X $1 trillion = $5 billion/year. According to the Congressional Budget Office, the value of the FHLBs' tax exemption is $1.3 billion/year. $5 billion + $1.3 billion = $6.3 billion. Helpful?.

DCMcDonald13 karma

How relevant are the FHLBs today? Should the FHLBs be required to do more to support affordable housing?

ProfBU19 karma

They are largely irrelevant today and yes, yes, yes on more affordable housing!

BUExperts12 karma

Hi Con - Thank you for doing this Reddit AMA! I'm not too familiar with the the Federal Home Loan Banks (FHLBs) and how they operate. Could you please elaborate on this?

ProfBU0 karma

$1 trillion in assets

11 banks

Subsidized by the taxpayers.

FHLBs compete with depositors for funds.

Please DM me for more background.

Askebon11 karma

Hi What is you favorite way to start your day?

ProfBU29 karma

Feet on the ground is a good start...

iconofthe2000s11 karma

Any advice for law students in their first year?

ProfBU94 karma

Transfer to medical school...

ergonaut10 karma

Do you go by Cornelius or do you use a nickname?

ProfBU32 karma

I go by "Con" but "Mush4brains" works too...

geonewh7 karma

Are there any redeeming qualities of the FHLB system that can be built on or do we need to start over?

ProfBU17 karma

Great question.

FHLBs are a great business model that happens to have gone off the rails.

Redeeming qualities are its structure (not to be confused with current governance), access to funding. Its regulator has asked that its mission be reconsidered. So many parts of the economy could benefit from this funding source. Think housing SUPPLY, climate remediation, infrastructure, and more.

Shin-ei5 karma

How long were you an independent director of the Federal Home Loan Bank of Boston?

ProfBU5 karma

Over 14 years.

Shin-ei3 karma

Thank you! At what point in your service did you realize the FHLBs were largely irrelevant?

ProfBU11 karma

I advocated fro change from the beginning. Their irrelevance became apparent to me when members ceased taking advances and their AHP numbers plummeted. Along the way I asked, "How is the FHLB of Boston promoting housing?" The answer from management was unsatisfactory.

yenmeng4 karma

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.

ProfBU12 karma

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

yenmeng3 karma

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?

ProfBU10 karma

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?

geonewh3 karma

In your article is stated that the FHLB CEO's are paid for "distributing a government benefit to their members." Are they aware of this mission? Do all the banks have the same mission? Who evaluates the success of this mission? Are their bonuses paid on profits or mission?

ProfBU10 karma

The 11 FHLB CEOs take home from $2-3 million a year. These are essentially government positions. For example, the CEOs of the 12 Federal Reserve Banks earn less than $500K. Regarding "mission" part of the problem is that advances to members is considered part of their mission. However, the proceeds of the advances can be used for ANYTHING whether or not it is mission related.

hfregeau_bu_edu3 karma

If someone wants to learn more about the FHLB System, do you have any recommendations for good articles that help explain the system, and any issues it may have?

ProfBU7 karma

Go to Consumer Federation in America and search for a paper by George Gaberlavage. Look for my coming op-ed in the Boston Globe.

DM me for more...hope this gets you started.

obenjab3 karma

What can I do as an entrepreneur to possibly start a lending company that takes advantage of these funds for homeowners or build different types of housing?

ProfBU8 karma

Today you'd have to form a bank. But Congress can and should change that admission requirement.

obenjab1 karma

I read you need to buy stock into the organization. How much is stock shares?

ProfBU7 karma

FHLBs are SEC registrants but their shares do not trade.

[deleted]1 karma


ProfBU6 karma

AHP is set by statute at 10% of net income. It should increase in '23 but still be a small fraction of the FHLBs' taxpayer subsidy.

primate-lover1 karma

Were you ever bullied for being named Cornelius?

ProfBU8 karma

Going by the nickname "Connie" led to some comments about the song, "A Boy Named Sue". Commotion ensued...

natesiq1 karma

What do you think our the biggest opportunities for real estate investors right now and in the next year with a higher interest rate environment?

ProfBU6 karma

As a non real estate investor, I have to think that whoever figures out the transition from retail and office space to whatever comes next will be the winner. Great question but several notches above my pay-grade.

Outlaw3410801 karma

How do your friends call you? Are you "Corney" to them?

ProfBU7 karma

I also go by "Connie". "Corney" drives me nutz...