Moody's Talks - Inside Economics - Bazemore on Housing & FHLBs

Episode Date: November 10, 2023

Teresa Bazemore, CEO of the San Francisco Federal Home Loan Bank, joins the podcast to discuss the nation's reeling housing market, and the role of the FHLB system. There's a lot to talk about as Teresa weighs recent criticism of the FHLBs in the wake of the banking crisis earlier this year, and the recent report from the FHLBs' regulator, the Federal Housing Finance Agency, proposing reforms to the system.For more information about Teresa Bazemore click hereMoody's Papers discussed in this episode click here and hereFollow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my two co-host, Chris DeReedies and Marissa D. Natali. How are you guys? Going well. How are you, Mark? Welcome back. It's good to be back. Oh, you're back. Yeah. I am back. Yeah, I came back early. I was supposed to go off. I was in London and I was supposed to go off to Dubai, but that part of the trip thankfully got canceled. So I came back home. So I'm actually back home. I'm really very excited about that. But you know what I learned while I was in London that I didn't realize was that everyone hates Brexit now. Like

everybody hates Brexit. Really? Yeah. And I go, well, what happened? Didn't you just got, you know, back in 2016, they voted for Brexit? So what happened in the last seven, eight years? And the answer was the people who voted for Brexit largely have died. So apparently, it was an older group of folks. And they're gone. And the guy, everyone who's remained says, like, what in the world happened here, you know? So, you know, I was surprised. It's just now, of course, I was in London, and I think in the financial district and most folks there never really like, you know, Brexit, but, so maybe it's a little bit biased, but they were saying that, you know, if you, they look at polls, you know, across the country, everyone is saying they don't like Brexit. So then the question, then

And the next obvious question is, well, can you get back in? The answer is not in two generations. Not easily. Not easily. Yeah, I didn't know this. The rule is if you want to get back in, you now need to adopt the euro as your currency. So the British want to come back in, they got to give up the pound, which I just, I don't know. I don't know.

But I found that fascinating. And I think it's interesting. You can see it. I mean, you can feel it. I mean, the one reason why their inflation is more persistent, it goes back to wages, and that goes back to a very tight labor market, and that goes back to they just aren't getting the immigrants from the rest of Europe to come in and help out. So the very tight labor market.

So I found that very fascinating. But anyway, good to be back. And we've got a guest. I'm going to keep a little suspense here. I'm not going to introduce her right away because I wanted to ask you guys one question before we move to her. And that is, because I have been away, a lot of, I haven't been able to keep up. What's the big economic news of the past week or so? What's at the top?

I know lots of stuff going on, but what's at the top of the list? Chris, is anything you want to point out? I'll point out oil prices. Oil, oil prices. Prices down to 76, 77, thereabouts, right? They had been in the 90s, right? In September. So that's certainly providing a little bit of early.

to consumers, you would think. So that's certainly a positive. There are certainly others. I won't steal Marissa's fund. Well, you just did. Oh. Oh, really? Okay.

Yeah, I was going to say oil prices. Yeah. So they were just a few weeks ago, I think they were all over $90 a barrel and it felt like they were headed north. That's right. Israel, Hamas, the worries about that spilling over into Iran and the rest of the East, Saudi was cutting production, so forth. But it went in the opposite direction.

So we're now down below or close to $80 a barrel. It's like 75 on WTI today. WTI, West Texas. Intermediate. Yeah. That's a big plus. So what's gasoline prices? Does anyone...

220, I think, was the... Oh, no, that would be wholesale, not retail. Wholesale. Yeah, wholesale would be $2. Oh, my local Wawa, I think, was at $360 yesterday. Well, if it's at Wala. Because wah-wah, it's got to be, you know, got to be the nationwide price for sure. Yeah, $3.60.

All right. Okay, good. So that's a real plus, right? It is. I think. It is. Right? Yeah.

We were, that's, it's on our risk matrix as a concern, right? Certainly if higher oil prices would knock down consumer confidence. So keeping them low and stable is definitely a plus. Of course, you know, they can go up as fast as they came down, can't they? Right. So I've got to watch that very carefully. But we'll take it for the top. time being, that's good. And we get a consumer price index report next week on Tuesday. I think that

should look pretty good, right? At least the top line, because gas prices are down from where they were a month ago. That should really help out here. Yeah, so down 15%, right? Yeah. September. Yeah, good. Good. All right, Mary, sorry about that. Did you want to, that's okay. Anything else on the front burner here in terms of your views of the economy? Well, kind of related to oil prices, you know, why have they fallen, right? So drastically over the past month. The Chinese economy continues to weaken. We got consumer price and producer price reports for China,

and they were both negative. So we have deflation in China, and that's potentially part of the reason why we're forecasting lower prices is because we're expecting weaker demand from China over the course of the next six to nine months. Right. So I didn't realize the Chinese, I thought the Chinese economy was kind of finding its way back, but no.

Doesn't look like it. Not in terms of demand. Very weak demand. Yeah. That's interesting. Good. Good. I guess so in a kind of a weird way, China's problems are a good thing for us.

Helping inflation. And we'll take it, I guess, right? Yeah. Yeah. Everything we can get. Okay. I was just going to point out long-term interest rates, right? I mean, that was the other thing just a few weeks ago.

Maybe it was even a week ago or two. really a lot of hand-wringing around 5% 10-year treasury yield. We had 30-year fixed rate mortgages up to 8%. And that felt pretty scary. And it was like oil prices. They had gone up and it felt like they were going to go even higher. But they've kind of come back in as well. The 10-year yield last I look was 450, 4.6%.

Something like that. I think 30-year fixed rate mortgages are still very high, but they're back down to about 7.5%. So that should be helpful. So it feels like all the economic news, sort of good news, you know, in its totality. Stock market. Yeah. Okay.

Okay. All right. Well, this might be a good time to bring in our guest. And I'm really happy to be able to have Teresa Baysmore join us. Hi, Teresa. How are you? Hi, Mark. Good to see you.

Yeah. It's very good to see you. And you're hailing from a hotel room in Philly. and I feel a little weird, you know, I'm not showing any hospitality. When you were flying over from San Francisco, you're from L.A. You're in L.A. You're flying from L.A. I think you sent an email, and I felt really bad because I can't invite you to anything because we're remote.

You can come to my home if you are in the summer. So I feel a little bad about that, but welcome. It's really fine. Thank you. So as you know, I came in town yesterday because my husband was being inducted into his high school's Hall of Fame, which was fun last night. So, yeah. Yeah. Norristown High.

He went to Norristown High School. Yeah. Yeah. You know, I went to Upper Marion High School. Oh, okay. Yeah. I think Norstown just beat our butt, you know, continually. Probably.

Yes, right. Especially when he was there. Yeah. Yeah. You were telling us a story? He had a run back of 103 yards, like a record. A 103 yards. Yeah.

It's one of the top records in Pennsylvania, apparently. Wow, that's pretty cool. And when you told me that he was getting inducted in the Hall of Fame, I googled you to find him. And I saw this W.HY, which is the local NPR station, did this piece called the Batman of Norristown. Do you want to explain that? Yeah.

So a few years back, we, we, we, both been supporters of Habitat for humanity, right? And, you know, I did it separately, but also through the MBA, which had a large focus on Habitat. So we worked with the Montgomery County Habitat affiliate and committed to help them with acquiring houses and into giving them the money to fix them up. And so because it was sort of one where we find a house, do it, and then they'd find the next house and we do it. They called him the Batman of Norristown because it's so like Batman coming in to help whenever the need arose.

Very cool. Very cool. Congratulations. And, you know, I just realized I didn't, I just assumed everybody knows who you are, but you're the CEO of the San Francisco Federal Home Loan Bank. And we go back a long way because you, are you a Philadelphia native? I don't know if you're not. I'm not actually a native of Virginia.

Virginia, okay. You've lived in Philadelphia, well, for many years. For a while. Yeah, I actually came to Philadelphia in 2006. So I had been involved in a startup in St. Louis that was with former colleagues from the Prudential. And we built a state-of-the-art mortgage platform. In fact, you could get approved on our platform online back in the early 2000. So it was kind of before rocket mortgage.

And it was a private label business for credit unions and banks, independent mortgage banks. And we sold it in 2005 to MBNA, which promptly sold itself to Bank of America. And I had left Bank of America to do the startup. I had been running legal or mortgage and the Community Development Bank while I was there. And that's when I decided to join Radian. That's when I came to, I came to Philadelphia in the fall of 2006. And I think the funny part is I had two other offers. And so even with all of the craziness during the crisis, my other two offers, and don't take any offense, Chris, is they were from Fannie Mae and Lehman Brothers.

So I probably. Good choice. It was well. Yeah, good choice. Maybe things would have worked out differently if you would have. Well, you know, we'll see. We needed you. It was a good, good opportunity.

I learned a lot at Radium, which was terrific. So you said MBNA, that was the credit card company. Correct. Correct. So we were actually, they were trying to do mortgages, but they were affiliated with a couple of other firms. They were, and they wanted to build out sort of a private label mortgage platform. That's exactly what we had done. think about their credit card business, their credit card business, they had a huge private

label credit card business. So we were supposed to become the mortgage platform, if you will, for them. It's just that right after we were acquired, the deal happened with Bank of America, which was really a credit card deal. And they had looked at our platform before, and they decided that they wanted to actually take our platform and put it throughout Bank of America. And so the private label part of the business went away. And they started working on that. And unfortunately, because of the countrywide deal that happened, maybe a year or two later, a couple of years later, that all got put on ice because it was just too much to try to put

we integrate countrywide into Bank of America's mortgage business and try to put up a whole new platform across. Oh, bummer. So this baby you built kind of just went into this behemoth organization and just kind of got lost. Yeah. Actually, when I was at Radian, I tried to buy it. They went and sell it.

Oh, right. And of course, Radian is a large private mortgage insurance company. and I can think that's how I got to know you a bit because I'm on the board of MGIC. Correct. And, you know, this was before my time. Maybe you were there, but MGIC and Radyin were going to merge, I think, at one point. Yeah, so those discussions there are. So think about it.

I had been through a lot of mergers at Nations Bank, Midd Bank of America merger. And I'd gone to do this startup and we sold it to MBNA and then there was a merger, which brought me to Philadelphia. And I hadn't been in Philadelphia two months when we started having those merger discussions. And I was the general counsel, right, of the holding company. So I was heavily involved in negotiating that deal, heavily involved in also the decision when both companies decided to walk away from the deal, which I think was the best thing, given what was going on at the time. But, yeah, and in fact, when we announced the deal that was early February.

of 2007. And our chief risk officer left, and I ended up becoming the chief risk officer in addition to the general counsel. And not only did we have a mortgage insurance business, but we also had a financial guarantee business out of New York that did a lot of double A credits for munis, some reinsurance business, a lot of wrapping of bonds. for colleges and community hospitals. So kind of a vast array of lines of business.

There was also international business for both the MI business and the financial guarantee business. So my initial focus when I took over the risk function was on the financial guarantee company because those are large deals that you're doing each time. And then I really had to do. to pivot to focusing on how we change the underwriting guidelines for the mortgages risk business.

Wow. And when did you leave Radian? When was that? In 2017. 17. So the Radium had gone through the crisis, survived like all the other MIs.I's. And you had it on solid ground. You said, okay, now time to get a rest, I suppose.

Yeah. And I was really one of the things I'm most proud of from the time at Radiant, because I became president of the mortgage insurance business in July of 08, is that we actually navigated our way out of it. And we also had the highest market share, which had never had that radian before. So, you know, which is kind of a real feat, I'm told, to do that. So, but it was a fun ride. And then I just decided, you know, when you're someone like me who sort of likes challenges and likes to do new things. And, you know, You know, things are now sort of going really well.

You get a little antsy. So it was time to move on. Move on. And then was next stop then CEO of the San Francisco Federal Home Loan Bank? Not right away. So I actually started joining corporate boards. And the first board I joined, though, was the Federal Home Loan Bank of Pittsburgh. And that's how I got sort of really to understand the federal home loan bank system

and how it worked. And then I also joined the board of a mortgage reed, Cadmira publicly traded out in New York. I have to say I understand how important liquidity is in part because of being there and at a mortgage reed in the middle of the pandemic when the market sort of seized at the very beginning. And then I joined the funds boards of Tiro Price. and I still serve on those.

I just finished a Stena's audit committee chair. Oh, fun. And then we moved to California. So we moved to L.A. It'll be five years at the end of this year. I had to give up the Pittsburgh board because I had a residency requirement. And I started on another board, which is an industrial reek. So it's kind of nice because I have sort of a good array of things that I get to learn from, you know,

in terms of what I do. And then so I joined this opportunity, came up at the Federal Home Loan Bank of San Francisco after I had been in L.A. for a bit. Well, and the news is that now you've been there for a few years and you're going to retire from San Francisco Fed. I guess you're off to the next thing. Well, you know, it's funny. You know, it's a huge lift.

And I, you know, when you're on the San Francisco side, of things, right? So much is focused on in D.C. So I'm finding myself traveling a lot, you know, to the East Coast. And also a lot of people don't realize that the 11 federal home loan banks, we raise our money through the debt markets through another entity called the Office of Finance. We all, as CEOs, sit on the board of the Office of Finance. So that's like being on another board that meets six times a year in D.C. or New York. And so I think, you know, I just thought it was time. You know, the board offered me another three-year contract.

I was willing to stay another year beyond kind of my current contract. But with the report coming out from the agency from the FHFA, and we knew there were going to be a lot of recommendations. coming out and I've been very involved in sort of the system's involvement with those discussions. The board was concerned that this is a long-term effort and it needed someone who was willing to kind of oversee that effort going forward. And so the decision was made that we would let my contract in on its own terms and they're starting to search for the next. person. Well, I can't wait to see where you are, go next. It'll be really cool to see that.

Now, you said a lot. Not a full-time job. It sounds like you've got like three or four full-time job. I'm just saying, yeah. But there's a lot to kind of unpack there with regard to the federal home loan banks because you and I and Chris and Marissa know the FHLBs, but most people don't. They've been around 100 years, but we need to unpack that and talk about, what? what you alluded to earlier, the FHFA, the regulator of the federal homeland banks just this week, I think, came out with a report detailing some potential reforms that are going to play out over a period of time. So we'll come back to that. But before we go there, I want to kind of mine your expertise in the housing market, in the housing finance system.

Because a lot of the listeners are really focused on, you know, what's going on in the economy. And obviously, the housing market is kind of front and center because it's the most interest rate sensitive sector of the economy. And it's at this point in time, taking it on the chin, right? 8% 30-year fixed rate mortgage. Nothing's affordable. Home sales have collapsed. So maybe you can just riff a little bit and give me your sense of what's going on in the market and, you know, where you think we're headed here. Yeah.

Well, I'm concerned about the housing market in the, at least in the near term. I don't know if that's the next two years or what that looks like for a number of reasons, some of which you've alluded to. but probably the number one issue is the lack of affordable housing stock, right? And I don't think there's an easy solution to that one right now. If you look at it, the number of households in the country is growing. So we're needing even to build more affordable housing stock. And that's at the same time that we already have a deficit of housing stock that needs to be filled. a large percentage of our, as you know, of homeowners are at interest rates that are at

4% or less, right? You could talk to people all the time who have a 2.5% or 3%. It seems like everyone, I'm just saying, everyone I talk to has a 2.5% mortgage. Have you noticed that? Yes. But it's true. Almost everyone in the U.S., who's a homeowner, has a mortgage that's under 4%. Right. So the reality is that it creates a disincentive for people to move on and move up to the next house in the normal course that you would expect.

Instead, they stay where they are. They, you know, they do remodeling. Maybe that's good for Home Depot and Lowe's. But, I mean, it is an issue in terms of that move up quality of housing, sort of that part of the house. stock now being available to new home buyers. And so I think that's an issue. Also, older Americans are aging in place, right? So they're also not going and living somewhere else in other communities or maybe with their children. And so all of those factors, I think, will keep home prices elevated. They might moderate. They may not go up in the ways that we've seen over the last few years. But I think those factors are going to sort of keep the market more expensive, if you will, rather than sort of seeing any kind of major price drop.

But that's also affecting the banks and credit unions, right? Because they've essentially, you know, they're holding a lot of this mortgage credit, whether they're holding individual loans in their portfolios or they're buying MBS, CMBS or, you know, all of the above. Mortgage securities. Right. And they're right. Mortgage back securities.

They're holding those in their portfolios. And a lot of that is fixed rate, right? It's, you know, at those low percentages. But yet, interest rates have gone up substantially. And their customers are looking for higher returns on their deposits. So there's a disconnect there. right. And so they have to be able to finance what's in their books if they don't want to have to sell it at a loss, but also try to pay higher rates. Because otherwise, what we've seen over the last year to really almost two years now is we've seen a lot of that money go into money market funds as people realize that they can get higher rates elsewhere. And so that's having enough. effect in terms of deposit runoff, which really started in 2022, started to see that deposit runoff.

And so it's really concerning from the point of view of now banks, credit unions have to really think about how much capital do they keep, right? How much liquidity do they keep on their books? and that is, I think we're starting to see a contraction of credit availability because of that. We're seeing it on in the single family side, which of course there's no refies anyway right now, right? But I think we're still seeing that issue. We're certainly seeing it with, you know, construction lending, you know, and multifamily, where especially some of the regional size banks who have been very active in that space. are concerned about needing to have more liquidity available.

And so it's a concern for all of those reasons in terms of what we're going to see. And just as a point on the interest rates, you know, as you look at people being able to purchase homes, every time the interest rates go off, I call it sort of a carving off. there's a segment of people who can no longer afford to buy, right? You've already got elevated home prices. They could buy, maybe they could afford to buy at 5%, but they couldn't afford to buy at 6. Or the people who could still afford to buy at 6 can't afford to buy at 6 and a half.

So each time the rates go up, I think there's a group of people who no longer can afford to buy a home. And that's, that's going to have an effect as well. And how those, those things all intersect, I think remains to be seen. Yeah, that's a downer. So you began. No, no, I mean, that's, that's the reality of the situation. I mean, you began with the affordable housing shortage.

And come back to that in a second. You talked about lock in, meaning people have mortgages that are lock, that are low. If they want to sell their home, go get another home and get another mortgage, which just prohibitively expensive given the jumping rates. And then you talked about kind of the mismatch on the balance sheet of financial institutions, banks and credit unions, because they own all these mortgage securities at low interest rates,

and they're now upside down on that, and it's creating all kinds of funding issues, which, by the way, is where the federal home loan bank can come in and help. But nonetheless, so lots of different things going on. I just want to circle back to the affordable housing shortage for a minute. And Chris, I know you recently did some work here in trying to size the amount of that, how significant that shortage is. Yes, yes. So we looked at the vacancy rates across the country, examine the current vacancy rate for both homeowner and rental properties.

I compare that to the long run average. And based on that gap, right, vacancy rates today are extremely low compared to history. Based on the gap between where they are today and what the average is, we calculated a need of about 1.2 million homes that would be needed to be added to the market instantaneously, right? This is just accounting for the current market just to get us back up to kind of that long run level of a vacancy. On top of that, as Teresa alluded to, there's ongoing household formation. There are houses that are lost to natural disasters, of course, that also have to be replaced. So that's kind of the minimum stakes, if you will, in terms of what we would need to fill that housing gap. And actually, I think that it states.

Yeah. Oh, sorry, Chris. Go ahead. Go ahead. Go ahead. No, I was just going to say, I think that even understates the case, right? Because if you go into the rental market, it feels like to me the high end of the rental market, not the affordable part, the high end, you know, the big towers and big cities across the country. That's where vacancy rates are rising.

You know, there's just a lot of supply coming in. And so that market is probably, you could argue maybe even overreasing. supplied, which means that the affordable part of their market, affordable rental, the shortage there is probably well higher than $1.2 million. I mean, if anything, I'd say your $1.2 million is probably a lower bound on, yeah, yeah, okay. You can see that pretty clearly in the house prices, too. The lower priced homes, the more affordable homes, you know, their house price growth continues to be quite strong, right? It's the higher end of the market where we are seeing some house price weakness or at least moderation. But it's very competitive still because of the affordability

reason and the real lack of supply for affordable homes that's propping up those prices. So that makes it even worse, right? Not only do you have a higher interest rate if you're looking for a more affordable home, but you're also competing with lots of other borrowers and that's even pushing up the prices even more. Did you want to say something? No, I was going to say, I think your point is well taken that if you look at some of the large cities, right, where, you know, I mean, we're in San Francisco and, you know, businesses have started to rebound. You're starting to see more people than you had in the past. But there's a lot of remote work, right? You guys are working remotely. And as a result, I think your point about maybe some of the vacancy rate being more elevated in the large

urban areas is is accurate. So, you know, I think that gap is probably maybe a little bit higher. But to your point, Chris, it's a big gap. And, you know, and that's without taking into account household formation or to your point, also destruction of housing through climate disasters, etc. Yeah. And I also think the other, this may be too much into the weeds, but our listeners, like to go into the weeds. So it feels like there's also pen up what I would call pent up household formation, right? Because households can't form because where are they going to, what are they going to, where are they going to live? I mean, they can't afford a single family home. They can't be a homeowner and they at an 8% fixed mortgage rate. And they can't afford the rent because rents

have gone skyward up until now. So they're doubling up. They're staying with their parents. So I suspect that the shortage is even, even greater, if you consider, you know, kind of a normalized level of household formation. Does that, does that resonate to? Is that, do I have that? Yeah. Yeah. And I think, you know, the way someone described it to me was, you know, we sort of have this natural view, right, that you sort of get into a starter apartment, if you will, and you sort of get a little bit more income, you move up, right? And so there's sort of the rental market, you're moving up in the rental market. And at some point, you exit into the ownership market. Most people, do or want to, and then you sort of move up there. And the way our housing market is set up,

it's set up for that. So when you get almost a clog in the market somewhere and no one can move up, so even the people who are able to move up may not be able to move up in the places where they are, right, depending on where those vacancies are, and you kind of then have a situation where the new entrants can't come in and you're right. They're living at home or they're, you know, three or four people sharing an apartment and those kinds of things. I guess the one, if I'm looking for a bright spot and Chris knows I always look for the bright spot. It's it's in terms of mortgage credit quality, right? I mean, even though we've got all the stuff going on in the housing market and the economy, delinquency rates, certainly default rates,

of foreclosures on mortgages remains exceptionally low. It's starting to push up a little bit, just starting to normalize. I think mostly in FHA, those are kind of loans to lower income, less credit worthy borrowers. We're starting to see some credit problems. But generally speaking, I think delinquency rates are still pretty low. And it doesn't feel like we're going to have a credit problem, right, because there's so much built up equity in these homes. Yeah. And I think, Mark, you and I both saw a lot of that, right, between, you know, being in the MI sector where what you're selling is protection on credit risks. So the, but that's right. I mean, the, even though you're seeing it tick up a little bit, it's been immense, I mean, very low in terms

of the mortgage default rate. And I think it's still below what you sort of even think of as quote unquote normalized, right? So I think that a lot of that is some of the regulatory changes that were made, you know, and Dodd-Frank, some of the requirements that have been put in place. I've always felt that that created some structural changes. And, you know, memories are long. When you go through the kind of crisis that we went through, right? And in 2008 and forward, you know, no one's looking to sort of embrace anything. And I think it's good. I mean, you don't want to put people in mortgages that are unsustainable. And I think we do have, afterguard against any movement back into something like that. I mean, my view has been, well,

I really want to see more people and better diversity in terms of people of color being able to get into home ownership. I also want to make sure that those loans are sustainable. Going forward, I think it's the worst when someone takes their life savings, puts it into a home and then they lose the home. It would have been better off without having bought the home in the first place. So, but I don't think we're even even near anything like that. I think that some of the structural changes through the regulatory process in particular and the statutory process have helped sort of reform how this is all being done. And certainly, you know, Fannie and Freddie are instrumental in that regard. And I guess that's one reason why in terms of house prices, we probably won't see

large sharp declines in prices because unless you have a lot of distressed sales at distress prices that you generally don't see that but I suspect we'll see some we have to see some weakening in price as people life happens right they got eventually the home they're in in doesn't suit their their their life I mean kids and children and divorce and death and job change they're going to have to move and once they start to move if mortgage rates haven't come all the way back in, even with an economy that's generating jobs, it does feel like for that to happen, we've got to see some kind of price weakness. That's my sense of it. There's got to be a lot of that, I think. You know, before you're going to see that. Because if it's

just about, hey, I need a new bedroom, maybe you add on to your existing home, right? Now you've got, you know, more flexibility in terms of adding accessory dwelling units on your property. There's been a lot of focus on that in California as an example. So, so I think that always is there, Mark. I don't know that that gets you there quickly because as Chris was alluding to, you still have multiple offers on some of these affordable, more affordable homes. Right. So as long as you you've got three, four, five or more people bidding against each other, it's going to keep prices somewhat elevated, even when those things are happening that free up some more units in that area. So you're arguing that more likely prices to stay flat and let things catch up.

Mortgage rates come in, incomes catch up, as opposed to house prices coming down because yeah, yeah, okay. I mean, maybe house prices, as Chris said on the upper end, come down a bit. Right. I think, you know, and I wouldn't necessarily say they stay flat. Maybe they, it's just this much smaller incremental increase. And I think it's going to vary a lot by market. Right.

Yeah, for sure. Well, let's see a good time to move over and talk about the federal home loan bank system. So I'm curious. So, you know, you go out to dinner with. folks or go to a, you know, cocktail party and someone says, well, what do you do? And you say, I'm the CEO of the San Francisco federal home loan bank. What, you just get these blank. Well, federal, what is that? What is the federal? Sometimes they ask me what about getting a mortgage. And I have to. Oh, what they say? Can you help me with that mortgage, please.

Right. Exactly. You know, the way I think about it is so the federal, you know, you, you referenced the 100, almost 100 year history, right? The federal home loan banks were created in 1932. There were 11 of us. And for the San Francisco bank, we cover California, Nevada, and Arizona. And actually, if you think about the, there's some real brilliance in terms of how they created this, because it was really to provide liquidity.

They being U.S. lawman. Congress. Meaning. Yeah. So, okay. So 100 years ago, the Congress did something right. I mean, and if, you know, I always referenced it's a wonderful life, right? If George Bailey had had membership in the federal home loan bank, he could have just called up,

got some money when those folks were doing the run on the bank, right? Instead of saying, oh, your money's in that person's house and that person's house, right? I mean, that's the modern day equivalent of what is happening. You know, we've seen over the last couple of years. So I think that, but also the system is able to sort of expand and contract. So we have Congress has changed who can be a member over the years. We now have commercial banks, credit unions, community development, financial institutions, and insurance companies have been members from kind of,

at the beginning. They can all borrow from us and that the primary business is the advanced business. It was the original business and that was liquidity for our members to sort of finance what they were holding on their balance sheets. And I think that's another sort of misnomer, right? We're not a warehouse lender, although some of our members are warehouse lenders. And so indirectly, we help them with the funds to lend to, it could be, other banks, but it could also be independent mortgage banks that they're lending to. But we're really

helping to finance the long-term holding in portfolio of mortgage loans and mortgage-backed securities, right? And so I think of it in that way. Also, generally, about 50% of our members are borrowing at any given time. So there's sort of a consistency if you would. I'm sorry, what percent did you say? About 50 percent at any given time are borrowing. So when you have these stresses in the market, that's when you see kind of everything shoot up, more borrowing at higher levels, but also more members borrowing. So we saw that earlier this year where institutions borrowed more because they were worried about not having enough liquidity on hand when they saw some, you know, other banks have runs.

And so, but there's almost an accordion effect to the system where we can expand if we need to. We raise our money in the debt markets. And then we can contract again to where the demand is that our members have. Yeah, I really like your use of George Bailey and a wonderful, life. I mean, that's a great example. So in the depths of the Great Depression, depositors were panicked. They were saying, give me my money. And the bank had to give the savings and loans at the time, gave, had to give the money back. And if they're giving the money back, then, you know, they can't fund other lending. And they have to call in the loans. They have to call in those

mortgages to pay off the depositors. And we got into this kind of self-reinforcing negative cycle down. they called the Depression. And the idea was federal home loan banks established in 1932 in the, in the middle of this, that the savings loans, it could, insurance companies could put those mortgage loans that they had on their balance sheet up as collateral to borrow effectively via the federal home loan bank system, which is backstopped by the federal government so they could borrow it at good rates and continue to meet depositors' needs, but not call in those loans and not create, complete chaos and complete havoc in the housing market. And that's, to this day, that's still

the model. And what you're saying is, you know, we don't have a great depressions, but we have things happen. We have pandemics. We have the financial crisis. We have what happened back in March in the banking system. And the federal home loan bank is there to provide that role to help George Bailey get the cash that he needs to be able to keep the bank open and allowing the economy to move forward. And so it expands when it needs to and it contracts when the needs not there. That's absolutely. And it's really interesting. Because if you go back to 2021, right? When, I mean, well, actually, if you start in late 2020, when the government was putting a lot of stimulus out there because of the pandemic and individual households were getting a lot of dollars.

they were depositing them into their financial institutions, whether they were banks or credit unions. And they were, and so what we saw in 2021 was that the balances of the federal home loan banks that sort of normalized kind of level of balances or loan advances went down to very low numbers at the end of 2021. If you go back and look at that, that's what you would see. And it's because if you're a financial institution, the cheapest way to, you know, fund yourself is through deposits.

You're not going to do that before you're going to borrow money. And it's not going to buy nothing. I mean, and I remember back, it was like, if it wasn't zero, it was pretty darn close to zero. It was pretty close. Yeah. Exactly. And so, and then what we saw in 2022, because I remember how we were having conversations about how long with this.

really low level last, right? How long would it take kind of that excess, those excess dollars to burn off? And we were thinking two years, three years. We certainly didn't expect to see it happening in 2022 when we were going into 2022. And what we saw instead was a combination of things. But initially, part of it was as the economy started opening up, people started spending some of that excess money. They also, as rates started going up, they started moving it elsewhere, where they could make more money. But at the same time, when those deposits had come in, the financial institutions do what they normally do. They deploy it, right? So they lent more. They did more mortgages. They bought more mortgage-backed security.

They bought more treasuries, right? And so they had these portfolios that were at the rates that were prevalent at the time that they made those investments. But we saw an increase of over, you know, 500 basis points in 14 months. And so those assets end up being underwater. And so you have two things happening. You now need additional funding to keep. those assets. That's why we saw the borrowing across the system go up, even in 2022. And it was all

types of institutions. It was all sizes of institutions. It was, you know, we saw it not just in the banking space, but in the credit union space as well as they saw, and their member organizations, they still saw some of their members put money in a money market fund where they might get paid 5%. So that's how this saw works. And so that's why it's really kind of brilliant how this was set up and that even with all of the changes that have occurred in terms of changes in who can be members over the years, changes in how the market works, the securitization market certainly didn't exist. in the 1930s, but it's really about holding those assets.

And most of the collateral that we take are, in fact, some type of mortgage asset, right? They're either whole loans or their mortgage-backed securities, sometimes multifamily, mortgage-backed securities, sometimes some commercial, but mostly resi and multifamily. Okay, so let me, now, of course, the federal loan bank system has come under some criticism, over the past year or so, lots of different lines of critique. The one that I think resonates with most people is going back to the March banking crisis, the failure of Silicon Valley Bank SVB and Signature Bank, these two large institutions, I guess SVB was in your world and signature was over in New York. Correct. And these were large failures that led to a bank run,

and it was pretty scary for a while until Federal Reserve stepped in and provided some liquidity support, the bank term funding program. And the regulators stepped in and insured the depositors, those that above or below the deposit insurance summit in these institutions. So they quelled the crisis. But nonetheless, and if you go back and look, SVB and signature were very large users of the federal home loan bank. They were under pressure. And so they turned to the federal home loan bank because they were getting deposit outflows, It's just like George Bailey, you know, money was flowing out.

And they said, okay, you know, I'm a member of the federal home loan bank. Help me out. And here's the collateral, by the way. Here are the mortgages and the mortgage securities and everything else that I need to borrow from you, federal home loan bank. But that's, they failed. And, of course, you know, now it's history. So how do you respond to that? What do you think about all that critique?

Yeah. Yeah. So I think there are a few different points. One is that we're not the regular. right? And if, you know, I think that gets confused too because for many years, it was the federal home loan bank board or something to that effect. And it was the regulator and the provider of liquidity. And Congress carved that off, I think, in FIREA. Yeah. And by 1989. 99. And now the FHFA is our regulator. But all of the members that are members of the banks are not, we're not their regulator. Now, we have an obligation to sort of credit underwrite our members. They have there are certain requirements in order to even become a member in addition to the type of organization that you are. And so we underwrit.

them when they're coming into the system. But even after that, we look at, you know, their ratings from their primary regulators. We look at their, you know, their financials as they report throughout the year. And we establish what the maximum amount they can borrow from us based on all of that sort of underwriting, if you will. And then we also then determine, and that's what we call that the financing availability. So think of it as, hey, I'm, you know, a bank or credit union insurance company. I can borrow, say, 20% of my assets size. And then there's borrowing capacity, which means now I've also pledged enough collateral. That's the collateral that meets the congressional requirements that I can borrow against. Most, most, most

people don't have, or institutions don't have enough collateral they post it to get to that financing availability amount. But why this is important is because it's really on-demand liquidity. So some of the critics have said, well, you should know what they're going to use the money for before you lend it. The whole structure of the system is built on-on-demand liquidity. So if someone calls in and says, I need, you know, a billion dollars or I need a half a billion dollars, we already have already underwritten them. We know that the collateral is there. We've looked at the collateral.

As interest rates have gone up, we've actually reviewed and decreased the value of the collateral, right? So we know whether they can borrow. If we had to underwrite the purpose, it wouldn't be on demand. liquidity anymore. And it would totally change sort of the how we can. Well, it may not work. I mean, it's going to stabilize. Right. We wouldn't be able to stabilize. You go back to George Bailey. The deposits are knocking on the door. You got to do something like now. You can't go. Exactly. Exactly. So I think that that's part of it. And so if you think about it, whether it was Silicon Valley or signature or the many other institutions that were starting to increase

their borrowings, they were increasing their borrowings over the course of 2022 into 23 for some of the reasons that I was talking about a few minutes ago. And so even two days, I think, before the bank run, they were still highly rated banks by any, you know, if you looked at any of the rating agencies, et cetera, the day before the run, they were, they announced they were going to have this big loss, we actually immediately started looking at their capacity and whether they should still be able to borrow, et cetera, it's that they had to run literally the following day. So I think that in the speed of the run, nothing like anything we've seen. I mean, even in the financial crisis, I think one of the best statistics I've heard is that

I think WAMU lost about 10% of its deposits over something like three, months and SVB lost 26% of its deposits in a day. And if there weren't a cutoff for, you know, getting money out of the bank, it would have just continued because there was a lot of demand that would have come out the next day. Correct me if I'm wrong, but I think the FDIC shut SVB down in the middle of the day. It was a Friday morning. They never do that. They never do that. I mean, it was about 8.15 West Coast time or 8.8. I mean, when I found out it was about 815 in the morning West Coast time when they shut it down. So, and so I think there's sort of a, there's while I hear what some of the folks are saying, and I think there's certainly things we learned over the course of this year, things like, you know, the level of uninsured deposits. And some of the, you know, the level of uninsured deposits. And some of the.

those things we have to start taking into account as we evaluate the credit worthiness of members and decide what that level of, you know, lending, sort of maximum lending amount should be and continue to refine sort of our credit models based on what we've learned over the course of this year. I think it would be a mistake to sort of not have it be on-demand liquidity the way it is now. And it's particularly important. And I think you pointed this out in some of your writing, you know, for small institutions that don't have the access to the capital markets or in a stress situation, access to some of their normal other sources of liquidity in those circumstances. They really do rely on us for that money. And, um, and, um,

And it keep continuing to have sort of a robust system is important to keeping also the cost of that liquidity as low as we've been able to keep it. Well, as you point out, I along with my good friend Jim Parrott, great housing analyst and a couple of our other colleagues at Moody's, we've written a couple of papers. And, you know, I'm a fan of the federal home loan bank system. So I might be a little bit biased. I'm just going to turn to Chris real quick, Chris, because Chris makes me. not be quite the fan. He may be one of those critics. Would you push back? What would you push back on anything that Teresa just said? Anything that we... I would agree. Certainly that they have provided liquidity and that liquidity is important. I guess at the same time, right? It comes

at there is moral hazard that's injected in the system, right? By having access to that liquidity on demand, having a cheap source of liquidity, right? I is a bank and institution. may not take other steps to guard against or even, I think one example, one key example is how few institutions actually have a direct line into the discount window, right there. The Fed's discount window. What's that? The Fed's discount window. The FHLBs are the next to last lender or last resort.

The lender of last resort remains the Fed. You have smaller institutions that, you know, really are just geared into the FHLB system. and if they needed to actually access the discount window, they haven't tested that system. They don't have the guardrails. I think that just underscores some of the moral hazard that exists there. So I agree that they play a role, but I would push back a bit in terms of, you know, there are these moral hazards that we should be thinking about and, you know, certainly looking to reduce in order to make sure that the system continues to serve the need that,

that we've described for it. And Chris, actually, we wouldn't disagree on that point. I wouldn't necessarily call it moral hazard. I would call it lack of risk management, right? Because if you think about it, it's about having all of the plumbing ready in case you need it. Right. So if you really are, and this is one of the points that was really made in the FHFA report, I think what we saw was someone like Silicon Valley Bank.

And the run was so dramatic. I'm not so sure it would have mattered, but we were all scrambling to try to help them get set up and get the collateral over to the Fed that evening, right, before they were taken over. But I think for some of the other institutions, we spent a lot of time over the course of that weekend, making sure there were intercreditor agreements set up. And we've continued to do that. So we now have a significant number of members that, you know, have those kinds of agreements in place. And that's the focus going forward. But I think of it more as a risk management tool, right?

They should have access and the ability to go to all of those funding sources. Because, I mean, we really, we're really there raising money in the debt markets, right? We don't have sort of a vault of money sitting right to and, and so if you show up in the way that SBB did at the close of market asking for billions of dollars, there's just no way, even if we had been comfortable from a credit point of view, there was just fundamentally no way to do that. They really needed to go to the Fed. And so I think your point is well taken. and that's been one of the areas of focus going forward. I think separately in the case of SVB,

one of the things we learned was that the asset liability management. Now, but that's not something that we normally would be as focused on because we're not the regulator, right? So we're really more relying on the regulators to kind of look at those things. it raises the question, how far do we have to go, right, in terms of credit underwriting, what more additional things do we have to look at in terms of how institutions are functioning? Let me turn now to the FHA report. So the FHFA took on board all the criticisms and concerns that people.

people have been expressing. And we haven't tackled all of them. We tackled some of them, but there's many. And it makes sense, right? You got a hundred-year institution. It's got to evolve and change and keep up with what's going on in the mortgage system and the housing finance system and everything else. So it makes sense that it has to, that needs to be looked at carefully on a regular basis. And that's what the FHFA, the regulator, did, produce a report. And lots of interesting moving parts there. I actually, I'm curious, well, maybe I should, before I tell you my view, I should ask you your view of the report. But there's a few things in there I want to dig into, but maybe I'll just, at this point, turn it back to you and just, what's your general sense of

the report? Well, I think we're still trying to digest all of it and figure out sort of, I mean, and if you think about the report, there are about 49 recommendations. I think all together. Is it 49? I wasn't about 49. Okay. Yeah. You're a, And I think a lot of them are in sort of the affordable housing kind of segment, which we were expecting, I think, certainly for our bank and others, we've been doing a lot more. We've increased what we do voluntarily. So that I think are things that a lot of those things that we think we can work with, the FHFA and across the system on sort of furthering those things.

and some of those we've already done. I think we have to understand how some of these things connect with each other. So one of the things that I think gets lost, this is not necessarily a comment about the report, as much as it is going back to sort of what some of the criticisms have been about that were sort of inputs, if you will, is that there's a direct linkage between how much business we do from a liquidity point of view,

and what's available to fund affordable housing, right? Because the reality is that whether it, and they recommended a 20% that HP, our affordable housing program, the increased Congress put that in place. I think of it as sort of a quid pro quo for not paying taxes. So we were at 10% today.

That was put in place in 1990. Right. And the agency has recommended going to 20%. And you're saying, well, that's kind of the effect of corporate tax rate. That makes sense. That's okay. Yeah. And I think that we're currently at about 15%.

We're on our own at our bank. Right. And we don't put that additional 5% into the affordable housing program, the way it's currently structured. Instead, we've used it for, we did a middle income down payment assistance program, where the down payment assistance, because in our district, we've got a lot of people who they might be able to buy a home,

but they don't have the ability to acquire a down payment. And we're capped at 80% in the H.P program of area median income. So we wanted to test that out. The money went, we did $10 million in May. It was all committed by September. So we did 80 to 140 in this. first pilot program. Or we do grants to nonprofits who are doing work in community investment, economic development, financial literacy. We took that number up from 1.5 to 4 million. So there are a lot

of different programs where we look at what are the needs in our particular. We did some around homeownership counseling, but we sort of put all of that together. And we, you know, that's how we came up with the 5% that we thought would be most impactful in our area. So what we'd like to see from our bank, and I can't speak for all of the banks, is that if we were to go to 20%, I think we want some of that to be monies that we can use in a discretionary fashion, clearly with oversight to make sure it's being used for affordable housing and community development, but that we can really tailor it to the needs in our communities. We're taking another million dollars, and we are investing it in helping to do capacity

building for Native American communities, which was another area that was a focus in the report. And CDFIs, I think, you know, we probably have the most active borrowing with CDFIs in our district. Just for the listener, it's community development, financial. nonprofit that invests in underserved communities. Some of them are for-profit. Some of them are not for-profit, but more importantly, they're non-depository because there are CDFIs that are depository institutions, but they have the benefits of FDIC insurance or insuff way insurance if they're a credit union.

So, but I think those are, so those are a lot of the things. things I think that there'll be a lot of opportunity to work together on. But we're still trying to sort through everything. The agency, the FHFA themselves, has said this is sort of a long road ahead because some of these things, there is, there's sort of a construct of what they have in mind, but a lot more to be sorted through. So rulemaking to come requests for Congress to act, which in some cases could potentially require rulemaking post-congessional action. So I think we'll have to see how all of this plays out over time. Yeah, I took a lot of solace in the fact that it sounds like this is going to play out

over not next quarter next year over a period of time, which makes total sense to me because I just have this image in my mind of the Federal Home Own Bank as kind of part of the plumbing of the financial system. It's been around for 100 years. and it's not quite clear where the pipes are going and how they all fit. And you start monkeying with it. You say, oh, why is that pipe going over there? Well, when you go over here, you could really cause the system to perform the leaks everywhere,

not performing very well. So it felt good to me that they're going to take their time here because you've got to really think through what you're going to do. So you, you, in your response to me about what did you think, this is kind of the open-ended question, what did you think of the report? You focus on the affordable housing side. And, of course, one of the key missions of federal home loan bank system is to promote housing and affordable housing. And that's what you're focused on.

And it sounds like you feel that all feels pretty good to you. There's some discussion and got to figure out what works best. But, you know, certainly the intent here is in the right direction. The other aspect of the federal home loan banks, which we've talked about, but just to make it explicit, is financial stability, you know, providing a source of funding to member institutions, you know, banks, insurance companies, CDFIs, when the going gets tough, when those depositors are knocking on George Bailey's door and providing that, you know, stability to the system. And as you said, the money can come in when it's needed and go out when it's not needed. And there I'm a little bit more, I don't know if I'm words uncomfortable. I'm just a little not sure because it goes to the conversation in the report around, well, the bank should be relying more heavily on the Federal Reserve Board through their discount window. That's the, you know, the discount window is the kind of the place where banks go if they get into real trouble and they need cash to kind of manage their way through.

and not to the federal home loan bank system. And I'm confused as to how do you draw that line? You know, where exactly should the fair home loan bank be in relation to the Federal Reserve? Do you have any, am I, is my. No, I think you've hit a really important point. And because there's not really a bright line, right, to this in terms of when someone is really in trouble enough that they need to go over. And obviously, we're talking to the primary regulators, and I think that's going to be part of the discussion as to sort of try to suss out when that point comes. And it may not be the same because the circumstances for a particular institution are going to be different.

And I think largely the thought is that we want the institutions to feel like we're still going to be there the way we've always been there. But I think it also gets to this point that we were talking about where there may become a point where the money they need is at a time or at a magnitude, right, particularly for very large institutions where they need to go to the Fed just because of how we raise our money. What I think we should have to be cautious about in part, too, is, and you've talked about kind of the federal bank backing, it's really an implied. guarantee, right? So the realities, we go into the market and kind of the value of that implied guarantee is what we could get in terms of execution in the market if we didn't have it versus having it, right? And then we pass most of that on to our members. And so if those, if, as some commentators have said, hey, that should maybe go to the Fed, then you're putting it all on the federal taxpayer, right? I mean, it's not on the federal taxpayer when we have it. It's on the bondholders,

so to speak, to the system. And what a lot of people don't realize is that in addition to having kind of more, we're always over collateralized, for one. Number two, we have the member capital, right, that they have to put in. We have retained earnings, which have, it's actually a chart in the report that the FHFA put out, the retained earnings of the system have gone up tremendously over the last several years. And then you have the bondholders have the joint and several liability of all 11 banks. So before you'd even get to the implied guarantee, right, but there could be times where there's such a demand or so much need that the Fed needs to step in. I know at least for me personally as a taxpayer, I don't want to see a lot of that going over

there before it has to. But that's a, I think, very distinct difference in terms of how you think about this, that we would do what we normally do, but there could be points in time. And I think to Chris's point, it's important for institutions to have the plumbing or set up with the Fed, if that were ever to happen. And hopefully it's a rarity. I mean, I think about earlier this year, yes, we had, you know, three institutions that were ostensibly closed down, right, by the regulators. But at the same time, we had a lot of institutions that were stabilized because of what we were able to do and we raise more money than we've ever raised as a system in the debt markets to do. that. And so no one really talks about that and how many institutions may have been stable.

No, no, no, Katrina, Jim and I. And you did. You did. Did you see what that study you did? Yeah, we showed that the federal home loan bank reduces the probability of bank failure, particularly among, as you pointed out earlier, small banks, because small banks don't have multiple funding sources that, you know, they don't have the deposits. If the deposit are knocking on the door, it's not like they can go to the bond market easily and raise cash or go to the big guys and say help, you know, fund me. They, you know, they go to the federal home loan bank. So I think there is. So we did do that.

Yes, you did. And it was a great paper, by the way. Well, you, well, I'm biased. Thank you. Yes. I thought it really hit on that point. And I think that's really important when you're thinking about this whole issue of the mission.

And then to the extent that the mission can be, as robust as possible in terms of, you know, one of the, one of the thoughts here, I think, in the report is about this concept of, is there a way for us to do things on the liquidity side that would encourage members to participate more in doing affordable housing, in funding affordable housing, et cetera. And I, you know, I think that remains to be seen too. Can I just make that explicit? So then I think, if I articulate this correctly, the proposal is to be a member, you have to show that you have, you make mortgage loans and you have mortgage assets, securities, you're helping the mortgage

market. But it's not a criteria that's in place all the time. So you just get in and then you're off and running. I mean, you've got a post-collateral, you know, that's mortgage-related to get the advance, but it's not a, it's not a requirement for membership. The proposal here is that you have to have, I think it was it 10% of your? 10%. And, and, and, and, and, and that's actually not what I was referring to. Oh, it was not. Okay. No, I was referring more to the concept of discounted, you know, discounted advances or ways that we could, where they would take those dollars and use them for investing, say, in construction of affordable multifamily housing or those kinds of things. The 10% I think is a separate test because right now there's not an ongoing test for

membership. There's been some analysis that probably wouldn't affect a lot of the banks and credit unions, some, but most of the banks and credit unions would hold more than 10%. I think it's the insurance companies that are members where it could have a substantial... I think they're exempt, though, in the report they didn't exempt the insurance companies? I don't think they didn't. Okay. No, I think I think some of the analysts have sort of assumed that they would. Oh, that's what it is. Right. But I don't think they're, I don't think they're exempt.

And I think many of them are not at that percentage. So that would be essentially a group of members. And I think they have, we don't have as many insurance members in our bank because they're just not as many insurance companies that are headquartered in our district. but I know that they are a stabilizing effect for the system as a whole because they tend to be relatively steady. And also, you kind of have to look at, you know, the insurance companies because they're investing in, say, R&BS, etc. You got a large insurance company, 4%, 5% could be a whole lot of investment, right? So, I mean, I think all of that has to be thought

through going forward because it could have a substantial effect on certain segments. And I don't know whether the CDFIs would be exempt. So at one point, we're talking about how can we do more for CDFIs? Some of the CDFIs are small business lenders. They're not, right? And we've been looking at whether or not there are ways for us to do more for them. But they're not necessarily invested heavily in the mortgage business, but they are supporting communities in economic development. Right. So if you think about this in a slightly broader way, you know, we talk about doing things that make for more vibrant communities.

Much of that's housing, but some of it's also supporting other aspects of economic development. Sure. Well, we're running out of time. I did just quickly want to go back to the Fed. You know, where is that line between what the federal home loan bank does and the Federal Reserve? And the Federal Reserve at this point is when we say that, we're talking about that, again, that discount window. But that feels so inadequate to me unless the reforms to the discount window. Because the discount window, banks don't want to go there because as soon as they do, they're in deep trouble, right?

Everyone knows they're in deep trouble and it's just going to become self-reinforcing. More people are going to knock on the door and say, give me my deposit time out of here because you're at the discount window. The other thing is, if I'm wrong, it's short-term money, right? I mean, I think primary credit's like three months. It's 90 days. Yeah, that's a huge, you know, issue, I think, because one of the things you can borrow from us for much longer periods, right?

And I think we've seen an expansion of the terms of our advances. So, you know, one year, two year, five year. I mean, so and even some of the folks who are investing in multifamily want to go longer than that because they want more of a match between the advance and the, you know, the funding they're doing for some of the multifamily development that they're funding. So, so you have the ability to have different. terms for a length of term for your advance and ladder them and, you know, really kind of structure how your asset liability management is working. And in the Fed is really a 90 day, which is really

why it, I think it's perceived to be more of a sort of short-term backstop in a, you know, a trouble situation. So we really do function differently. And that's a huge difference that you pointed out. Yeah. Well, I've completely monopolized you. I haven't let Marissa say one word. I gave Chris like three minutes. But maybe before we, that's because, you know, this is very complicated. I'm sure listeners are like, what's exactly going on? They can't quite get it entirely. So we'll come back and visit. But I think this is really, really important because it goes to something even more broad, and that is what's happening in the financial system more broadly, not only banking system, but in the non-bank part of the system. And there's lots of vulnerabilities that I think are

building up. And we need to, I think, really think through, you know, what the kind of changes we need to put in place to make the system, you know, more stable going forward. But I'm going to get off the soapbox. Marissa, Chris, anything else you wanted to ask Teresa about or push on, push on before we call it quits? I know this is really unfair for me to do, but I'm going to do it anyway. So maybe I'll turn to you, Marissa, first and ask if there's anything you wanted to push back on or ask for greater clarity. No, this was great. I learned a lot. Can I go back to just some fundamental questions about the housing market and the outlook, kind of bringing it back to what we were talking about at the top of the podcast talking about the unaffordability,

the lack of supply. And Chris, you could jump in here too because it goes to your study on the vacancy rates. So we know we have a million units of multifamily housing in the pipeline that's ready to be built or permitted. How does that factor? How do you think that factors into the supply issues. And do we know what kind of housing that is? Is it sort of this top end of the market sort of housing? And how does that factor into the supply in the housing market? So what we've seen, you know, we fund a lot of housing projects that are really for people

who are 80% or below of the area median income. I think a lot of what's in the pipeline. And I don't know the specifics about the, you know, where how that all breaks out has tended to be in the more middle to upper end of the spectrum. And part of the reason is because the cost of building is so expensive. And in fact, we just did some housing summits. We put out a report recently called closing the equity gap. But part of it is just to put a shovel in the ground is incredibly important.

expensive. So it's the land acquisition, it's the permitting, you know, one of the discussions is around can we get some of the municipalities to sort of decrease the cost? Yeah. Right. And if you, you know, if you look at some, we're typically kind of the last money in, right? So if you look at some of the projects and they can be for people under 80%, some of them are to fund projects for people who were homeless, homeless veterans, et cetera. But there are often many different funding sources. So it's also much more difficult to fund these projects. In fact, there was a lot of concern that Senator Cortez Mastow had because not as many projects were being funded in Nevada. And we actually funded the Nevada Housing Coalition so that they could help educate developers

on how to access all the funds that they needed from these multiple sources to try to increase the amount of affordable housing development in Nevada because often there's 8, 10 sources of funding. It takes years sometimes to amass all of these funding sources. And it's another important piece around the federal home loan banks because some of our larger members are the ones who have the capacity. to sponsor these projects. There has to be a sponsor. Ironically, SVB had 16 of these that we had to find new sponsors for. So I think to your question, that's part of the issue is how do we reduce the

cost of doing this? Certainly the pandemic didn't help material costs. Right. Substantially. And we need more people, going into the building traits. Yeah. Right. Another area that we didn't sort of touch on, but is another issue. Chris? Oh, gosh, there's so many questions and topics. We'll have to have Teresa back in retirement.

I guess I'll ask a very quick question then. Last one. Are federal home loan banks systemically important financial institutions or not? I think they are. And I think every time there's been a stress, we sort of proven to be. So I think that's important. So they should be under the auspices of the Fed?

Well, we already have a federal regulator. So, I mean, I, I'm not going to go there. But I mean, we already have a federal regulator. You want them doing stress tests, Chris? Well, they do stress tests. I mean, we get, we get reviewed every year. So, you know, by HFA. I think Chris is alluding it.

If you're labeled systemically important financial institution, then you're under the Fed's auspices. And a whole different ballgame. I don't think the FHFA is going to allow that to happen in the awesome way. Anyway, Patricia, it was fantastic to have you on. The federal loan bank system is going to definitely miss your voice. So it's going to be tough void of fill. But you're great. And I really appreciate.

you coming on inside economics. So thank you for doing that. Absolutely. I enjoyed it and I'm happy to join you at another time. That'd be helpful. Well, with that, dear listener, we will talk to you next week. Take care now.