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FHFA Pulls Captive Insurance Company FHLBank Eligibility
Tuesday, January 12, 2016
The final rule for membership in the Federal Home Loan
Banking System (FHLBank) was announced on Tuesday by its regulator the Federal
Home Finance Agency (FHFA). The new rule
will eliminate one class of membership while deleting another requirement from the
proposed rules announced in 2014.
The rule allowing insurers membership has been rewritten to
define out those that meet the definition of "captive insurance companies." A captive insurer is one for which the primary
business is underwriting insurance for its parent company or for other
affiliates rather than for the public at large. FHFA said that such companies are generally
easier and less expensive to charter, capitalize and operate and this type of
entity is increasingly being used as a way to qualify otherwise ineligible
companies from becoming FHLBank members.
The captive insurance in effect become conduits to get low-cost FHLBank
funding for the ineligible parent company. Since mid-2012 there have been 27
new captive insurers admitted to FHLBank membership, 25 of which are owned by otherwise
ineligible entities.
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