President's Report

August 8, 2007

Letter to OFHEO Director James Lockhart by Alfred A. DelliBovi, President and CEO


The Honorable James B. Lockhart III, Director
Office of Federal Housing Enterprise Oversight
1700 G Street, N.W.
Washington, D.C. 20552

Dear Director Lockhart:

I have read with interest recent news accounts that suggest there is a scarcity of home mortgage financing available in some markets including New Jersey and New York. These headlines appear to be based solely on anecdotal evidence; I would be concerned if they were true.

We have surveyed our 288 community-based member lenders in New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands and found that home mortgages are available. This is not a surprise because the business of community bankers is extending credit in the areas they serve. So it appears as if the headlines dramatically overstate the case.

There are, in fact, thousands of community bankers located in virtually every city, hamlet, and village in our nation that can and do responsibly underwrite mortgages for families at all levels of income, including the jumbo and non-conforming mortgage sector.

Calls to extend the reach and authority of Fannie Mae and Freddie Mac into the healthy and functioning primary mortgage market provided by community lenders appear unjustified. In fact, the poorly capitalized, often unlicensed broker distribution network effectively created by Fannie and Freddie may have caused the problems we now see in the subprime market. And as an interested observer of and customer in the mortgage markets for nearly 40 years, I have learned that nothing drives innovation in mortgage products like other people’s money. And no one can deny that Fannie Mae and Freddie Mac are trailblazers in demonstrating how securitization can make use of other people’s money. But while the GSEs have standards and regulators, their Wall Street imitators know no bounds.

In contrast, the regulated network of community-based lenders is subject to the antipredatory lending standards recently promulgated by banking regulators. Community bankers have solid experience in avoiding the kind of subprime lending products that are creating pain and problems for some homebuyers. And the community banks now have access to GSE funding of the mortgages they originate through sales to Fannie Mae and Freddie Mac, as well as advances collateralized by those loans from the twelve Federal Home Loan Banks.

Simply put, the problem is not about availability of mortgages for creditworthy borrowers. The problem is the unsuitable loans that have already been made to borrowers that may need to be modified or recast. If there is a role for Fannie and Freddie in this process, I would suggest that it be based on enabling them to purchase in the secondary market those loans that community lenders do not choose to retain in portfolio. In order to minimize risk, only the purchase of loans originated by those regulated by the OCC, the OTS, the FDIC, the NCUA, or a state banking department should be permitted.

Our system of mortgage origination, on the whole, works exceedingly well. It seems to me that parts of the system have recently failed because clarity, full understanding, and solid underwriting were missing. We can only hope to correct this problem by excluding the swindlers and con artists who created the mess.

We have a network of regulated, established community lenders who have a proven track record of making good mortgages that millions of people live with every day. Let’s not squeeze them out.

Very truly yours,
Alfred A. DelliBovi, President
Federal Home Loan Bank of New York
101 Park Avenue, New York, N.Y. 10178-0599

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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “projected,” “expects,” “may,” or their negatives or other variations of these terms. The Bank cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, regulatory and accounting rule adjustments or requirements, changes in interest rates, changes in projected business volumes, changes in prepayment speeds on mortgage assets, the cost of our funding, changes in our membership profile, the withdrawal of one or more large members, competitive pressures, shifts in demand for our products, and general economic conditions. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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