AICPA Panel Comments on Federal Home Loan Bank Membership Proposal

February 24, 2015

The American Institute of CPAs’ (AICPA) Depository Institutions Expert Panel (DIEP), in consultation with the AICPA Insurance Expert Panel, wrote a comment letter to the Federal Housing Finance Authority (FHFA) on its proposed ruling that addresses Federal Home Loan Bank (FHLB) membership requirements.  The January 26 letter focuses on the aspect of the proposal that would require that members of a FHLB have at least one percent of total assets in home mortgage loans and for members that are not Community Financial Institutions, ten percent of total assets must be in residential mortgage loans.  Specifically, the proposal would require an annual assessment of membership compliance that is determined using data from the FHLB members’ regulatory financial reports where possible, or require the FLHB to obtain an “auditor certification” where necessary, to calculate the relevant information.

The DIEP’s comment letter makes three main points.  First, the FHFA’s proposed definitions of residential and home loan mortgages differ from members’ primary regulator’s definitions.  This variation in the definitions would mean that member banks could not use their current regulatory reporting systems to derive the needed information.  This will result in the creation of a separate system to track compliance, which will undoubtedly be both an administrative burden and costly to maintain. 

Second, the comment letter urges the FHFA to consider allowing all its member banks the ability to self-certify.  The proposed external certification could be very costly to the member banks, particularly to those member banks that do not already have an audit requirement.  Under the proposal,  member banks are allowed to self-certify in limited situations.  The comment letter proposes that self-certification can be supplemented with procedures performed by the FHLB in conjunction with their rotational examinations.  

Finally, the comment letter stresses that the use of AICPA professional standards should be considered if the FHFA decides to move forward with some form of auditor assurance or attestation.  Since the term “certification” is not a defined term, the letter encourages that the FHFA work with the AICPA to ensure that any desired external auditor assurance or attestation is appropriately designed to meet the FHFA’s requirements and comply with AICPA’s professional standards.