The bank that’s got your mortgage lender’s back

Despite the name, homebuyers can’t get a mortgage directly from Federal Home Loan Bank of San Francisco. Instead, the bank provides liquidity to its 335 members, which are the banks and credit unions where you can take out a loan.

“We are a bank of bankers and financial institutions,” said Alanna McCargo, the bank’s president and CEO. “It’s a growing role, and I think going forward that will continue to be the case.”

The San Francisco bank is one of 11 regional banks that make up the Federal Home Loan Bank System, a federally chartered system of cooperatively owned banks that promote economic growth and housing affordability. The Federal Home Bank of San Francisco operates in California, Nevada and Arizona, where housing affordability is an especially critical issue.

McCargo became head of the bank this year, after leading Ginnie Mae since 2021. She spoke with “Marketplace” host Amy Scott about the role of the Federal Home Loan Bank System, the housing issues facing her region and criticism regarding the mission of the Federal Home Loan Banks.

The following is an edited transcript of their conversation.

Amy Scott: All right, so let’s start with a quick explanation for people who aren’t familiar with the Federal Home Loan Banks, which I think is probably many of our listeners. So what do you do?

Alanna McCargo: So first of all, it’s great to be with you, and the Federal Home Loan Bank System, you are absolutely right, is pretty much an unknown system that has been in the background of our financial services system for 92 years. The Federal Home Loan Banks are really here to provide sources of funding and liquidity to our members, to really support economic development [and] affordable housing. That’s the system perspective, and so, you know, understanding that the Federal Home Loan Banks, one, are not federal agencies. We’re member-owned cooperatives, which is a really interesting structure, and this is why a lot of people have a hard time understanding what we are and how we are, but our members —

Scott: Well, the word “federal” is right in there, which implies a certain relationship.

McCargo: Yeah, federally regulated, chartered by Congress. We don’t make home loans, and so that’s part of our name. And we’re not a direct retail bank to consumers. We are a bank of bankers and financial institutions. It’s a growing role, and I think going forward that will continue to be the case.

Scott: So it seems like a rebranding is in order. “Federal” “Home Loan Banks” — none of those are really what you do. A question for another time, I guess.

McCargo: Exactly, we’ll talk about that one later. I just wanted to mention too, and just in San Francisco alone, most of our footprint, believe it or not, is smaller local lenders. So we’re a real daily part of our, of our financial institutions’ ability to provide their products and services and really support grant making, affordable housing and economic development in their communities.

Scott: Yeah, and your mission, housing affordability, is one of the reasons we wanted to have you on because this crisis has been especially acute in your region, California, Nevada and Arizona. So as you’ve taken on this new role, what challenges are you seeing in making, in closing that affordability gap?

McCargo: Yeah. I mean, as you know, affordability has been a long-time challenge. The state of California alone needs to build 1.2 million affordable homes to meet the demand of low-income renters in our state. Arizona, it’s over 175,000 units short. Nevada, nearly 100,000 units. So overall, sort of shortage of housing, and then the implications of homes that are in disaster-prone areas are on the rise. And so when that convergence happens, you can understand, if you have a significant shortage, all prices are going to do is rise. And it’s making it very, very difficult for affordable housing developers in our states to even bring new construction and new affordable housing online. And I think that’s, that’s a real significant challenge.

Scott: I want to ask you about some criticism of the Federal Home Loan Bank System, which is that some argue the banks have really strayed from their mission to support affordable housing and community development. As I’m sure you know, this summer, a group of mostly Democratic senators sent letters to each of the 11 banks pointing out that last year they spent only $398 million on affordable housing, and that a sizable share of bank members had not originated a single mortgage in five years. First, I know you’re new to the system, but I want to know how you respond to that, and do you think the system needs reform?

McCargo: So I think the system has changed, and the needs across the country have changed, and I think the system has done a really good job of listening to stakeholders of all kinds, including members of Congress. I think that there has been increased commitments, increased investments nationally in the affordable housing side of our mission. I do think what we do with our affordable housing advisory councils, what we’re doing to really increase our investments, the new programs that we’ve put in place, that’s really meaningful, and we are already seeing meaningful change, and we’ll continue to see that going forward.

Scott: So going back to what we talked about at the beginning, that many people aren’t familiar with the Federal Home Loan Bank System, I read a line from the Brookings Institution that said the system has basically been toiling in obscurity. So why should a regular person know about and care about your institution?

McCargo: I would say that the reason to know that your banker has a bank that is helping to support their ability to do whatever it is they’re doing, whether it’s to bank you, to lend to you, to provide you with a mortgage loan, those are enabled by your bank’s relationship with the Federal Home Loan Bank System. I would go as far as saying, without the Federal Home Loan Bank System, we would probably not have as many community banks and credit unions and smaller financial institutions that could, you know, maintain themselves and continue to sustain. It’s not obscure, and it’s not small. It’s very consequential that the Federal Home Loan Banks are there to provide that needed liquidity and ensure that we have the financial stability we need, and that community banks and others can thrive.