It takes a significant amount of money to build homes. Builders need funds for land acquisition, labor, and materials. And not just substantial sums of dollars but also the confidence that the availability of such funds is dependable. That’s where banks, big and small, come into the picture. Financial institutions not only lend to mortgage borrowers and others. They also provide the money that builders need to do their job. Where do they get the funds to lend? Community lenders who provide construction financing to local builders very often rely on a private network of banks called the Federal Home Loan Banks (FHLBanks). The FHLBanks keep the cost and availability of affordable homes by providing a reliable flow of funds to local lenders who finance the construction housing and homeownership in their communities.
Before I became the CEO the Home Builders Institute (HBI), the nation’s leading nonprofit provider of trade skills training and education for the building industry, I was a home builder for more than 30 years. I served on the board of the FHLBank of Chicago for 15 years. My experience has instilled in me a deep understanding of the importance of bringing together all the essential elements needed to produce housing in America today. And importantly, how the private, public, nonprofit and Labor sectors have the opportunity at this unique moment to work together toward that objective.
The nation’s lack of adequate housing supply today makes the housing desperately sought by Americans too expensive. When demand is high and supply is low, costs rise. Scarce housing supply makes the price of homeownership and rental housing out of reach for millions of households. Those of us in the home building industry know the problem well.
One of those pieces to the puzzle is the ongoing credit needs of communities. For instance, the lenders who provide funding to home builders need a reliable supply of liquidity. Liquidity refers to the steady flow of funds lenders use to lend. Banks themselves borrow the money which they provide to businesses and consumers. Most times it’s from other larger institutions that are typically unseen by the public but who are responsible for maintaining a pipeline of liquidity. A primary source of liquidity is the FHLBanks. Simply put, they are the bank for bankers.
FHLBanks lend money to banks, credit unions and other member institutions. They are behind-the-scenes players in the critical process of keeping liquidity flowing to communities in urban, suburban and rural areas everywhere in the U.S.
Builder customers of local banks know that the FHLBanks are essential for the job of growing the nation’s housing supply. On February 11, the National Housing Conference (NHC) is hosting a one-day event titled “Federal Home Loan Banks: Shaping the Future of Affordable Housing and Community Investment.” This event will offer a comprehensive look at the FHLBanks and their mission to provide liquidity to member financial institutions to support housing and community investment. I encourage attendance at this event. It’s the right thing to be talking about if we care about the future of where and how we and our fellow Americans live.
