New York FHLB’s New Chief Keeps ‘Open Mind’ About Membership

Mortgage & Real Estate

Jose R. Gonzalez, the new president and CEO of the Federal Home Loan Bank of New York, is open to allowing new types of financial institutions into the FHLB System—eventually.

For now, membership should stay as it is, he says.

“We need to keep an open mind with respect to where the market is moving,” he says. The mortgage business “is evolving, clearly, from the traditional market.”

Real estate investment trusts, for instance, “may eventually merit consideration” for inclusion in the cooperative system as the mortgage business changes, says Gonzalez. Any new members would have to have sufficient capital “to ensure the vitality of the co-op,” he says.

To be clear: Gonzalez, the first Hispanic to run one of the 12 district banks, opposes expanding membership to independent mortgage banks now, citing their lack of capital as the major negative. Commercial banks, thrifts, credit unions and a few insurers make up most of the current membership of his district.

Mortgage banks have sought entry to the system in recent years as a source of liquidity. Most FHLB members, though, are depositories. A generation ago the system served thrifts. Now commercial banks are the biggest in number, along with thrifts, credit unions, and a smattering of insurance companies.

Congress would have to approve any additional types of members to the Federal Home Loan Bank System, according to David Jeffers, executive vice president for policy and public affairs for the Council of Federal Home Loan Banks. But at least two REITs are already accessing the System through an affiliation with an approved lender type like an insurance company or a CDFI (Community Development Financial Institution). One of them, Community Development Trust in New York, which describes itself as a REIT and a CDFI, joined the New York district bank last year.

As far as pending reform of the government sponsored enterprises goes (the FHLBs are a GSE along with Freddie Mac and Fannie Mae), Gonzalez argues the system “was not a cause of the crisis, but rather one of the solutions.” For pending GSE legislation, such as the Johnson-Crapo Senate bill (which has a proposal for a cooperative structure) and the Hensarling bill in the House, his attitude is wait and see. Johnson-Crapo, he says, is “a good base for discussion.” But his first priority is “please. Do no harm to the Federal Home Loan Bank System.”

Gonzalez, who has more than 30 years of experience in the mortgage business (in the capital markets, at investment banks, and commercial banks) succeeds longtime FHLB-NY CEO Al DelliBovi, who has just retired after surgery. Gonzalez was on the board of the district bank for ten years before being hired there last year.

He credits his 280-employee district bank with being a model of hiring diversity. “This bank is incredibly diverse,” he says, with workers “from all national originations and ethnic groups. My hiring confirms this tradition.”

His bank is the second smallest of the 12 in member institutions (341) but the largest in assets and advances (loans to members). “We have a good mix of members,” he says. “It’s really a proxy for the U.S. financial system.”

And while commercial banks (147) dominate the membership, New York still contains a large number of thrifts (96) as well as credit unions (81), seven insurers, eight agencies and two community development financial institutions.

The bank’s advances stood at $90 billion at the end of last year, highest of all the district banks, Gonzalez points out. Assets were $128.3 billion. The new CEO is proud that advances have been growing in recent years, providing liquidity during a time of tightening access to funds.

Gonzalez feels the bank’s outreach to minorities is centered in its affordable housing programs. He says New York has been innovative, especially in its Affordable Housing Program (mandated by Congress after the thrift crisis of 25 years ago). About a third of the money it provides goes to matching funds to help prospective borrowers with down payment and closing costs. The match is $4 for every $1 the borrower puts into an account with one of the district bank’s members, with a match maximum of $7,500. The other two-thirds go to traditional affordable housing developments, both single-family and multifamily, sponsored by members.

The match program has helped fund more than 7,500 borrowers, with another 5,800 in the pipeline, for a total of $52 million. The grant program has funded 1,385 projects, creating or rehabbing 60,000 affordable homes, and $475 million in “gap” financing intended to provide about 5% of a development’s cost. This gap money has leveraged more than $8.5 billion.

The match program started in the New York district and has now been adopted by all of the other eleven district banks. One program that came in to New York is the Mortgage Partnership Finance program, started by the Chicago district bank to try to compete with Freddie and Fannie.

“We’re not one of the biggest district banks in MPF, but we have a couple of billion dollars of MPF assets acquired from our members,” Gonzalez says.

“It’s grown,” he says. “At some of our sister banks it’s a very big program for their members.” At New York “it’s a good product for the smaller members and part of the arsenal for the foreseeable future.”

Gonzalez was vice chairman of the board of the FHLB-NY from 2008 through 2013, according to his official biography. Prior to joining the bank, he was senior executive vice president, banking and corporate development, for OFG Bancorp (formerly Oriental Financial Group Inc.). Gonzalez is a former member of the board of Santander BanCorp, and also was vice chairman, president and CEO of Santander. After joining Santander in 1996 as president and CEO of its securities broker-dealer, Gonzalez was named senior executive vice president and chief financial officer of the holding company in 2001.

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