Speaking of the district bank’s Affordable Housing Program, (which the other 11 regional FHLBs also have), Alfred DelliBovi said, “the importance of this program increases all the time, especially lately when there are fewer and fewer funds from government for housing. We become a key part. It’s a program that works.”
Each Home Loan Bank is required to set aside at least 10% of its private earnings to support the creation and preservation of housing for lower income households. The New York FHLB set aside $40.3 million for the AH Program in 2012, up from $27.4 million in 2011.
DelliBovi, who is the second longest serving president among current FHLB heads (about one year behind Dean Schultz of the San Francisco FHLB), notes that the housing market is improving, but that “we are still several years away from matching pre-crisis home sale and building start levels. The U.S. economy is expected to grow this year, but only at a modest 2% pace.”
Under these circumstances, he says, giving the less well-off homebuyer a leg up is critical. And that’s an attitude he’s had since way back in his long career.
As deputy director of the Department of Housing and Urban Development before heading the FHLB-NY, DelliBovi saw again and again that the big hurdle to homeownership was saving for the downpayment, which could be impossible for some.
“When you’re paying rent every month, it’s hard to scrap together money to get into a home,” said DelliBovi, who was deputy secretary at HUD from 1989 until 1992, the year he started as president of the district bank.
“When I came to the FHLB, I wanted to start something like a Christmas club to help people save for downpayments,” he said.
Three years later, in 1995, the bank rolled out the First Home Club, which provides downpayment and closing cost assistance by contributing $4 for each $1 saved—for a total of up to $7,500 in matching funds to first-time homebuyers. The program is now also available in the other 11 Home Loan Banks. Total household income of those participating may not exceed 80% of the area median, and borrowers must take a credit counseling course.
“The foreclosure rate for the First Home Club program is around one-half of 1%, significantly lower than the national foreclosure average. These are poor people, and they have a lower default rate than the people Mozilo (Angelo Mozilo of Countrywide Financial) was giving loans to.”
DelliBovi is bitter about the regulatory fallout experienced by community lenders from the 2008 mortgage loan debacle. “Ask yourself, who failed? Fannie, Freddie, WAMU, Countryside, and others. You can throw Lehman Brothers in there. But who’s paying? Valley National Bank, Astoria Savings, First Colonial. They are being made to pay for the follies of others.”
DelliBovi calls the Dodd-Frank Act regulating the banking industry too broad, as well as “deadening,” “costly,” and “poorly constructed.” It is the result, he said, of lawmakers acting to address a problem but lacking an understanding of root causes, while also failing to provide oversight of the regulators.
“The nature of legislation is that the lawmaker passes some law directing some agency to do something, in this case regulators, who are now gun shy,” says the 67-year-old DelliBovi, who was a New York State Assemblyman from 1971 to 1978.
The regulators “don’t want to be hauled before some Congressional committee and asked to explain why something somewhere went wrong. They don’t want to be blamed. We need oversight of the regulators, which we don’t have. Unless they are managed well—called up on the Hill once a month to be sure they are doing what was intended—their tendency is to go overboard,” said DelliBovi.”
“I am not trying to be negative. I know (former Rep.) Barney Frank and (former Sen.) Chris Dodd and I respect them. They were just trying to avoid a repeat of what happened. Reducing risk sounds like a great idea, but if you do it to the point where business is impossible, that’s crazy. Shut down the banks and we’ll eliminate risk entirely,” he said.
DelliBovi said new regulations are wreaking havoc on portfolio lending, which only makes another crises more likely. “Capital requirements and Basel 3 are drying up portfolios. Banks can’t afford to keep loans on their books and that’s going to have the effect of drying up credit.”
As part of this, the loan market is experiencing “nearly complete dependence on Fannie, Freddie and Ginnie Mae securitizations,” he said. “Lending activity in the secondary mortgage market has its place but it cannot be the dominant position.” Under these circumstances, “money may flow in like the high tides and then recede as quickly.”
On the topic of financial crises, DelliBovi says the two that occurred during his time at the FHLB—the Long-Term Capital Management meltdown of 1998 and the mortgage debacle of 2008—underscore the same lesson, namely, “that liquidity is king. And that’s what we provide. Back in the days of (President) Clinton, people were going around saying, ‘we’ve got Fannie and Freddie, why do we need the FHLB system?’ No one is asking that anymore.”
DelliBovi grew up in the New York City neighborhood of Astoria, Queens, and his father worked repairing oil burners. “Living and growing up in the city gave me a great appreciation for urban issues,” he said, adding that community preservation was a key concern in the neighborhood he represented as a state legislator.
His time at HUD was a tremendous learning experience, he says, calling the department “the ultimate preservation initiative. There was a whole cluster of urban issues and it was brought home that jobs are everything. With a job you can pay the mortgage, pay the rent—have a life.”
The FHLB-NY covers New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands, and its net income for 2012 was $360.7 million, up from $244.5 million for 2011. It has 350 member lenders, with an investment portfolio of $12 billion.
The12 district banks in the Home Loan System, which are privately capitalized and raise funds by issuing debt instruments, have a membership of over 8,000 financial institutions. The system is supervised by the Federal Housing Finance Agency.
“It’s all about helping our members fund their communities. This is what we think about, this is what we do all day. It’s a great job, an opportunity to do what I have done throughout my career, which is to find ways to help communities,” said DelliBovi.