The Department of Housing and Urban Development this week shut the door on Farm Credit System lending institutions entering the Federal Housing Administration program, following stiff opposition from the American Bankers Association.
Last summer, HUD proposed to expand the FHA program by allowing FCS lending institutions to originate government insured single-family loans.
ABA feared FCS lenders could be fierce rivals to rural community banks. Trade group president Frank Keating immediately complained to HUD that the FCS is a government sponsored enterprise and its status as such allows Farm Credit System lenders to borrow at Treasury rates and enjoy federal tax advantages over private banks.
"ABA applauds HUD's decision to withdraw the proposal that would have allowed the Federal Farm Credit System to double down on its federal guarantees by allowing it to participate in the FHA home mortgage programs," Keating said in a statement Tuesday.
In issuing the proposal last August, HUD claimed it had noticed a reduction in the availability of mortgage financing in rural areas.
ABA countered that according to its research and feedback from member banks there was no such reduction in home financing.
Keating also took issue with FHA's decision to require community banks to pay for annual financial audits to maintain their FHA-approved status.
If bankers reduce their lending in the future, "it will likely be driven by HUD's own audit policies, which will drive taxpaying community banks from the market,” Keating said last summer in a letter to HUD.
HUD published a notice in Monday's Federal Register about the withdrawal, officially killing the idea.
The notice says HUD is committed to ensuring the availability of mortgage credit nationwide and the department will continue to monitor the adequacy mortgage credit in rural areas.
At the same time, HUD and the Obama administration "remain committed to reducing FHA's market share and facilitating the return of private capital to the housing finance market," according to the Federal Register notice signed by FHA acting commissioner Carol Galante.
In certain parts of the country, FCS institutions are "very significant home mortgage lenders," according to John Blanchfield, who runs ABA's center for agricultural and rural banking.
He noted the Farm Credit Administration is a very "pliant regulator" and the FCS is exempt from Consumer Financial Protection Bureau oversight and regulation.
"We were concerned they would be very fierce competitors," Blanchfield told National Mortgage News.
