During the Great Depression, as the rate of foreclosures reached a thousand per day and millions of Americans were pushed out of their homes, Congress passed the 1932 Federal Home Loan Bank Act, which established a discount banking system to encourage financial institutions to initiate mortgage transactions, also known as originating mortgages.

With a balance sheet reaching $1.3 trillion, the Federal Home Loan Bank System is the country’s second-largest issuer of debt behind the Treasury Department. It originally comprised a dozen regional banks scattered across the country that provided cheap loans to local mortgage lenders. Those mortgage lenders would package the loans into low-interest mortgages for homebuyers who otherwise could not afford a mortgage. The regional banks are cooperatively owned by their member financial institutions, which purchase shares in the banks in order to borrow from them.

The Federal Home Loan Bank System is a government-sponsored enterprise with a housing mission similar to the companies Fannie Mae and Freddie Mac. But while Fannie Mae and Freddie Mac buy and sell mortgages from banks and credit unions, the Federal Home Loan Bank System’s main purpose is to provide liquidity to member institutions so that those institutions can provide mortgages.

Home loan bank membership was initially limited to savings and loans institutions, also known as “thrift banks,” as well as insurance companies, which sold mortgages at the time. But in the 1980s, as thrift banks saw widespread failure due to risky investment practices, the Federal Home Loan Banks began losing too many members to sustain themselves.

In response, Congress overhauled the system. Through the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Congress invited commercial banks and credit unions to become members of the Federal Home Loan Bank System.

The legislation also loosened rules requiring members to pledge residential mortgages as collateral in case they couldn’t pay back their loans. Now members are able to pledge a wider range of collateral, including commercial loans, mortgage-backed securities, and government securities. That change has clouded the oversight on how the loans are used, said Sharon Cornelissen, director of housing for the consumer advocacy nonprofit Consumer Federation of America.

The legislation also introduced the system’s affordable housing program, which requires each regional bank to allocate 10 percent of its net earnings each year to grant programs that fund affordable housing initiatives in each of the bank’s regions.

Membership in the Federal Home Loan Bank System subsequently swelled. There are now more than 6,500 members of eleven regional banks, with commercial banks comprising more than half of that number. The system is expected to have received $7.3 billion in public subsidies in 2024 alone, according to the nonpartisan Congressional Budget Office.

The banks’ activity now reflects little of their original mission, and instead have together become a “Frankenstein institution” that serves private interests, said Jared Gaby-Biegel, a research associate for the United Food and Commercial Workers (UFCW) union.

Home loan banks have become a go-to source for banks looking for quick cash: the system became a backstop to save financial institutions from failing during the 2008 financial crisis while over three million homeowners filed for foreclosure. During the regional banking turmoil of March 2023, as banks invested in risky cryptocurrency ventures, the home loan banks of San Francisco and New York lent roughly $58 billion to four banks — Silicon Valley Bank, Silvergate Capital Corp., Signature Bank, and First Republic Bank — before all four of those banks folded.

While the system’s affordable housing program is one of the largest sources of grant funds for affordable housing in the United States, allocating $8 billion for affordable housing development since the program’s founding, the amount the banks contribute to the program pales in comparison to how much the system pays in dividends to its members. In 2022, affordable housing program contributions were assessed at $355 million, while the system paid out $1.4 billion in dividends. By 2023, the system paid out a record $3.4 billion in dividends to its members.

A study by the economic and social policy think tank Urban Institute found that the regional home loan banks’ affordable housing contributions tend to represent only a small share of total development costs for affordable housing, which in 2021 ranged from a low of 2.7 percent by the Atlanta bank to a high of 10.6 percent in Pittsburgh. And since the home loan banks launched the affordable housing program in 1990, the effort has funded fewer low-income housing initiatives than its counterparts Fannie Mae and Freddie Mac funded in one year alone.

“When you talk about the program ‘creating affordable housing,’ is funding 2 percent of total capital costs really ‘creating affordable housing’?” said Michael Stegman, author of the Urban Institute study. “It is clearly filling a gap, but the demand for funding far exceeds the supply of those dollars.”

Meanwhile, member institutions more aligned with the original act’s mission, like local banks and cooperative housing networks, now struggle to gain access to the system’s loans because the regional home loan banks view them as less attractive borrowers than big banks and insurance companies.

These local community banks, known as community-development financial institutions, help economically disadvantaged communities gain access to financial services, including mortgage loans. However, only 5 percent of these institutions certified with the Treasury Department are members of the Federal Home Loan Bank System, a figure that Stegman said “should raise a regulatory red flag.”

Community-development financial institutions are often required to cough up almost double the amount of collateral as their larger bank counterparts in exchange for advances because they are viewed as riskier clients. These steep requirements “make it so economically infeasible for us that many say it is just not worth it,” said Gremillion, at the African American Alliance of CDFI CEOs.

“It’s as if a corporate giant shows up to a food bank and takes all the supplies,” Gremillion said.

Although insurance companies have been eligible to become members of the Federal Home Loan Bank System since the program’s beginning, many companies did not take advantage of the system until the 1989 legislation loosened oversight on how the loans could be used. In the past thirty years, insurers’ use of the system has skyrocketed, with insurance membership more than doubling in the past decade — even though insurance companies no longer originate mortgages.

Insurance companies have become the system’s second-largest borrower after commercial banks, with over $150 billion in advances. And despite comprising only 9 percent of the system’s membership, insurance companies make up 20 percent of total loans.

Meanwhile, private equity firms on Wall Street have identified the life insurance industry as an attractive investment target that gives the companies access to massive amounts of capital. The number of private-equity-owned life insurance companies has jumped 50 percent since 2018, now representing more than 9 percent of the life insurance industry.

When private equity firms buy insurers, they gain the right to control insurers’ assets, allowing the firms to use insurance portfolios for their own investment strategies. According to McKinsey, a global management consulting firm, the top five largest private equity firms have holdings in life insurance companies, representing up to half of the firms’ total assets.

In recent years, private equity firms have begun targeting life insurance companies that are members of the Federal Home Loan Banks to gain access to the system’s cheap advances to use for their own investments, said Courtney Alexander, a senior research analyst for the United Food and Commercial Workers Union.

Industry players have advertised how insurance companies can increase their profits from membership in the home loan banks, calling membership an opportunity to “enhance investment yield and total return.”

By 2023, there were 29 private equity-owned life insurance companies that had access to the Federal Home Loan Bank System, a 20 percent increase in just one year, according to a National Association Insurance Commissioners report. Apollo, KKR, and Blackstone own or manage assets for companies that share more than $20 billion in loans taken out from the Federal Home Loan Banks.

At least $80 million of that number can be traced back to the tax and regulatory benefits that home loan banks receive as a government-sponsored enterprise, Alexander said.

Apollo Global Management is by far the biggest user of the system, with over $15.6 billion in current funding agreements through its subsidiaries. “Apollo has been the leader in buying these insurance companies, and it has spurred other private equity companies to do the same,” Alexander said. “The trend is accelerating.”

Apollo CEO Marc Rowan helped create Athene Annuity and Life Company in 2009. The insurer immediately became a member of the Federal Home Loan Bank of Des Moines, according to membership records. Apollo held a 35 percent stake in the company for more than a decade before it fully acquired Athene in 2022. The acquisition doubled Apollo’s total assets, which are projected to reach $1 trillion by 2026.

Since 2022, Athene’s borrowing from the home loan bank system has grown over sixfold. Despite having zero mortgages on its books, Athene was the fifth largest borrower of the Des Moines bank before it merged with Apollo, with $2.4 billion in outstanding advances. That number has since increased to $15.6 billion this year, making Athene the Des Moines bank’s largest borrower and representing more than 13 percent of the regional bank’s total advances.

Apollo has disclosed in federal financial filings that the home-loan bank advances are used as part of its “investment spread strategy,” meaning Apollo uses the low-interest loans to invest in other projects that pay a higher interest rate. In a recent quarterly report, the company noted “strong quarterly inflows” driven by home loan bank activity.

“We seek to earn excess returns. And when we see opportunities to do that, we will be very aggressive,” Rowan said in Apollo’s 2024 year-end call.

Based on the $15.6 billion Apollo currently holds in borrowing from the home loan bank system, along with the almost 2 percent interest rate that the company receives from its investments according to recent financial reports, the private equity firm may earn more than $274 million per year on its home loan bank borrowing, i.e., almost 10 percent of its total investment earnings, according to the UFCW’s Alexander.

“It’s a pure investment profit strategy,” said Alexander. “They are doing it to make money off of money.”

A spokesperson for Apollo and Athene declined a request for comment.

Other firms have followed Apollo’s lead. New York City–based firm KKR bought retirement and life insurance company Global Atlantic Financial Group at the start of last year for more than $4.4 billion, giving KKR access to three insurance subsidiaries of Global Atlantic Financial Group that are members of Federal Home Loan Banks. Between Forethought Life Insurance Company, Accordia Life and Annuity Company, and Commonwealth Annuity and Life Insurance Company, KKR’s subsidiaries hold $2.3 billion in outstanding loans from the home loan banks of Indianapolis, Boston, and Des Moines.

KKR did not respond to a request for comment.

Private equity giant Blackstone added Everlake Life Insurance Company to its portfolio in 2021. The insurance company currently holds $54 million in funding agreements used for “investment spread strategies or general operations,” according to a financial filing. Blackstone also briefly held a giant share of Fidelity & Guaranty Life Insurance Company, which has been a member of the Atlanta bank since 2004. Blackstone still partners with the insurance company in managing the insurer’s assets, which are boosted by $2.6 billion from the Atlanta home loan bank.

Blackstone clarified their investment assets, but declined to comment.

Once the money leaves the Federal Home Loan Banks, borrowers can do whatever they want with it, Gaby-Biegel said. This also means it is impossible to track where home loan bank money goes. “There is no oversight over how these loans are used,” said Gaby-Biegel. While longer-term loans that last over five years are statutorily required to be used for residential housing finance, “there’s also no real oversight on that,” he added.

Darlene Simpson had lived in her apartment in Escondido, California, for more than a decade when Blackstone purchased the building in 2021. Simpson receives Section 8 government vouchers, which help low-income tenants pay for housing, but the portion she pays out of pocket for rent has doubled since Blackstone’s acquisition.

Many of her neighbors have moved out, citing rent increases, and many more have been evicted for falling behind on rent. Since Blackstone came in, Simpson says that maintenance issues, like a leaky ceiling and a clogged sink, have largely gone ignored.

“It’s like they are forcing me out by not fixing things,” Simpson said. “It doesn’t feel like a home anymore.”

Simpson’s experience is not an anomaly. As private equity groups acquire members of the Federal Home Loan Bank System to access the system’s funds, the industry is simultaneously swallowing large swathes of the housing market. These firms are exacerbating the country’s housing crisis by inflating rent prices, ramping up evictions, and squeezing the market for homebuyers.

What’s more, the real estate funds these private equity firms use to purchase residential properties like the one Simpson lives in are largely financed by insurance companies that have taken out billions in Federal Home Loan Bank advances, creating yet another direct line of cash flow from the home loan banks to private equity firms.

In total, private equity firms are estimated to own 500,000 single-family homes and over 1 million rental units across the country, and they are expected to control 40 percent of the single-family rental market by 2030.

Blackstone is now the country’s largest landlord after buying up over 300,000 rental housing units in a multiyear real estate shopping spree, according to research by the nonprofit watchdog Private Equity Stakeholder Project. The firm started acquiring single-family homes following the 2008 financial crisis when more than 2 million people foreclosed on their homes. It now boasts a portfolio of over 60,000 single-family homes.

In company filings, Blackstone has told investors how it profits from the affordable housing crisis and the dwindling housing supply. In a 2024 letter to stockholders, Blackstone listed “Declining new supply” in a section titled “We See Several Reasons for Optimism in 2024.” The lack of housing has given the company “pricing power for rental housing assets,” according to a 2023 letter.

While borrowing $2.3 billion from the Federal Home Loan Bank System, KKR has also been ramping up its own landlord business, purchasing more than 5,200 apartment units across the country for just over $2 billion earlier this year.

Private equity firms use large amounts of debt to buy residential buildings. The firms then raise rents at exorbitant rates, impose new fees, neglect property maintenance, and ramp up evictions to boost profits, according to a 2022 study from the advocacy group Americans for Financial Reform. Finally, they off-load the buildings at a profit, a tactic ProPublica identified as “corporate house-flipping.”

Pulte, Trump’s choice for the country’s federal housing regulator, named mobile parks, a vital source of housing for low-income communities, as a prime investment target for his company. On a recent podcast with the financial advising firm Wealthion, Pulte identified single-family real estate and mobile home parks as “the next generation of our wealth generation,” calling his firm “very bullish” in real estate investing.

Said Pulte, scion of one of the country’s largest homebuilding empires, “There are going to be many, many millionaires and probably billionaires made in housing over the next ten, twenty years.”

Jordan Ash, director of housing at the Private Equity Stakeholder Project, said that the private equity business model is “not about long-term investment.”

“It’s about making the asset more profitable and selling it off,” Ash said. “It has a large impact both in terms of rent increases and also in terms of driving up housing prices and squeezing out homebuyers.”

Blackstone has settled multiple lawsuits filed by renters for violating rent-stabilization rules over the years. In San Diego, the firm purchased more than five thousand affordable housing units in 2021 for $1 billion, then hiked rents for some units by as much as 64 percent — six times the maximum rent hike cap of 10 percent under California state law.

The fund that Blackstone used to purchase the housing in San Diego for $1 billion was heavily bankrolled by life insurance companies that are members of the Federal Home Loan Bank System, according to a list of investors in the Blackstone Real Estate Partners IX Fund obtained by the Lever. 

Life insurance companies such as Prudential Insurance Company of America, ReliaStar Life Insurance Company, and Voya Retirement Insurance and Annuity Company all funneled cash into Blackstone’s fund while taking out almost $4 billion in loans from the Federal Home Loan Banks of New York and Des Moines.

“Insurance companies are large investors in private equity funds,” Ash said. “It makes me wonder if they are using money from the home loan banks to actually invest in these real estate funds that very clearly counter the push for affordable housing.”

“If you do it right,” Pulte said about his company investing in real estate, “you can put your head on the pillow at night and know that you are doing OK.”

Under Pulte’s leadership, it is unclear what will happen to efforts already underway to reform the Federal Home Loan Bank System. Sandra Thompson, director of the Federal Housing Finance Agency under Joe Biden, launched a sweeping review of the system in 2022 to address its known deficiencies.

FHFA’s resulting report proposed doubling required contributions to the system’s affordable housing program and tightening membership requirements, including a mandate that members continually hold a portion of their assets in mortgage loans. Nowhere in the report, however, is there any mention of private equity’s encroachment into the system.

The report’s suggestion to double affordable housing program contributions was endorsed by senators Catherine Cortez Masto (D-NV) and Elizabeth Warren (D-MA). But the regional home loan banks — and the life insurance industry — have pushed back.

While the home loan banks agreed to voluntarily increase their contributions to 15 percent of their net income in 2023, the banks rebuffed a recent request by the Treasury Department to raise that contribution to 20 percent. The banks, which earned $6.7 billion and paid out $3.4 billion in dividends to their members in 2023, argued that raising the level of affordable housing contributions would “not address the underlying complexities of the housing crisis.”

According to federal lobbying records, regional Federal Home Loan Banks and their members have spent more than $5 million since January 2022 lobbying on issues including housing finance reform, such as the Federal Home Loan Banks’ Mission Implementation Act to double the affordable housing programs to 20 percent. That bill was introduced in 2021 as companion legislation in both chambers of Congress by Sen. Cortez Masto (D-NV) and Rep. Ritchie Torres (D-NY). Since then, there has been no action on the bills.

In a letter to the Federal Housing Finance Agency, Council of Federal Home Loan Banks president Ryan Donovan argued against raising the affordable housing program contribution level. He instead suggested that the agency should use its review of the system “as an opportunity to provide more flexibility” and that “additional regulatory flexibility would enhance contributions to affordable housing.”

Representatives from the Council of Federal Home Loan Banks did not respond to inquiries from the Lever.

“It’s a very lucrative system for the banks and insurance companies that are part of it,” said Alexander at UFCW. “They have a resistance to any changes that are going to reduce the dividends and profits to their members.”

Sharon Cornelissen, who serves as chair of the Coalition to Reform Federal Home Loan Banks, a coalition of seventeen national organizations promoting reform of the system, advocates for a tripling of affordable housing program contributions to 30 percent, noting that 40 percent of each bank’s net earnings are paid out in dividends. “They are very generous to their shareholders,” Cornelissen said. “They should be more generous to the public, too.”

Gremillion of the African American Alliance of CDFI CEOs said that the Federal Housing Finance Authority should reduce the collateral barriers that home loan banks impose on community-development financial institutions. “We aren’t looking for a handout,” Gremillion said. “We just want fair access to a system that was built to support the work we have been doing for decades.”

In a country where affordability has all but disappeared, Cornelissen said that it shouldn’t be a big ask to bring the system back to its original goal of helping people obtain housing.

“It seems like a victimless crime,” Cornelissen said of the system’s drift from its housing mission. “But every dollar that a private equity company gets from this system is a dollar that could help someone struggling to afford housing.”