The Federal Home Loan Bank of Boston is a $52 billion wholesale bank for housing finance and economic development. It is cooperatively owned by eligible financial institutions that become members of the Bank by purchasing its stock. These members are community and regional financial institutions with headquarters in New England.
The Bank's purpose is to provide a stable funding resource for member institutions and facilitate housing finance and economic development in New England. Rather than serve consumers directly, the Bank provides credit and other financial tools that members can use to provide services to the public, operate on a sound basis, and support community-level housing and economic-development initiatives.
The Bank operates as a wholesale lender, raising money in the capital markets and then lending it to member institutions. The loans to members are called advances. Advances provide members with flexible, cost-effective funding to supplement their deposits as a source of money for lending activity.
Long-term advances often help members fund mortgages that they will hold until the loans are repaid. Although they serve a number of purposes, shorter-term advances frequently provide the dollars for a mortgage loan between the closing and the time when the loan can be sold in the secondary market. The Bank routinely provides advances with maturities ranging from overnight to 20 years. For most members, the Bank is the only readily accessible, single-source supplier of both short- and long-term wholesale funds.
In addition to its core business of lending to its members, the Bank:
- acquires member-mortgage assets through the Mortgage Partnership Program®;
- accepts interest-bearing deposits from members;
- intermediates interest-rate-exchange agreements between its members and established dealers of the products;
- underwrites standby letters of credit on behalf of its members for qualified purposes;
- executes wire transfers on behalf of member institutions; and
- provides securities safekeeping services for members.
Interest-rate, liquidity, and prepayment issues create risks for lenders who must rely on short-term liabilities, such as deposits, to support mortgage assets. Without effective ways to manage these risks, many depository institutions would be unable to offer fixed-rate mortgage loans or would restrict originations to loans that can be sold in the secondary market.
Advances from the Bank enable members to supplement deposit funding with longer-term liabilities that closely match the maturity and repayment characteristics of mortgage loans. Members also employ advances for asset/liability management at the balance-sheet level. The ability to limit risks with advances encourages many members to offer and hold mortgages for properties and home buyers that are not well served by the secondary market.
Housing and Community Development
Each year, the Bank dedicates 10 percent of its earnings to its Affordable Housing Program. Through the AHP, members work with community-based housing developers to obtain the Bank's grants and interest-rate subsidies for specific housing initiatives. Since the program's inception in 1990, the Bank has awarded more than $350 million in grants and subsidized advances to fund over 22,500 units for sale or rent to very low-, low-, and moderate-income New Englanders.
The Bank's Community Development advances offer reduced-rate financing that members use to meet the housing and economic-development needs of low- to moderate-income households and neighborhoods in their communities.
New England lenders eligible for membership in the Bank include savings banks, savings and loan associations, cooperative banks, commercial banks, credit unions, and insurance companies that are active in housing finance. The Bank has more than 450 members.
The Bank is capitalized entirely by the capital-stock investments of members. Members purchase stock in proportion to their borrowings from the Bank, their holdings of mortgages and mortgage securities, and their assets. The stock has a par value of $100 per share and is redeemable at par.
Federal Home Loan Bank System
The Bank is part of the Federal Home Loan Bank System, which is made up of 11 regional Federal Home Loan Banks. Each of them is a separate corporate entity with its own board of directors and management.
The other Federal Home Loan Banks are headquartered in Atlanta, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, Topeka, and San Francisco. Through the 11 Federal Home Loan Banks, more than 7,800 community-based lenders are members of the Federal Home Loan Bank System, which Congress established with the passage of the Federal Home Loan Bank Act in 1932.
The Federal Home Loan Banks are government-sponsored enterprises, federally chartered but privately capitalized and independently managed. The Federal Home Loan Banks meet all their costs from earnings, including the costs of raising funds jointly in the capital markets. In addition, they are assessed for the full costs of their federal regulator, the Federal Housing Finance Agency, in Washington, D.C. No tax dollars are involved in the operation of the Federal Home Loan Bank System.
All advances are collateralized by home mortgages or other high-quality assets. No Federal Home Loan Bank has ever experienced a loan loss.
The Bank's primary source of income is the spread between the interest it pays to borrow funds and the interest it earns on funds lent to members and earnings derived from its own investment portfolios, including earnings derived from the investment of its members' paid-in capital stock. The Bank borrows funds on a joint basis with the other Federal Home Loan Banks. The FHLBanks borrow at favorable rates because of their strong capital positions, conservative lending policies, and status as government-sponsored enterprises.
The Bank is governed by a 16-member board of directors. Nine member directors are elected by the members located in the state where a member directorship is filled, and seven independent directors are elected by the Bank's membership at large.