Housing finance at a policy inflection point

Housing affordability remains one of the most persistent economic challenges in the United States. Considerable attention has been given to supply constraints, construction costs, interest rates, and local regulatory burdens. More recently, the conversation has also begun to focus on the efficiency with which mortgage credit moves through the financial system.

In March, the President issued an executive order directing a comprehensive review of national housing finance market efficiency, with a focus on improving access to mortgage credit and strengthening the functioning of the housing finance system. The directive underscores growing attention to how credit flows from capital markets and liquidity providers through lending institutions and ultimately to borrowers.

At the same time, policymakers in Congress have advanced bipartisan proposals focused on expanding housing availability and strengthening the systems that support mortgage finance. These efforts are generally aimed at improving market functioning, reducing barriers to housing production and financing, and supporting lenders’ ability to serve communities across economic cycles.

Taken together, these developments point to a renewed policy focus not only on housing outcomes, but on the infrastructure that makes those outcomes possible.

The housing finance system as a credit transmission network

Endemic to all of this is the recognition that the housing finance system is not a single market, but a network of interconnected participants, including homeowners, renters, investors, financial institutions, government entities, and local communities.

Liquidity plays a critical but often underappreciated role in this structure. When funding is stable and accessible, lenders can originate loans consistently, manage balance-sheet risk, and maintain credit availability through changing market conditions. When liquidity becomes constrained, lending capacity can tighten even if underlying demand remains strong.

For this reason, policymakers are increasingly focused on the institutions and mechanisms that stabilize funding channels across the system.

Credit unions in a changing funding environment

Credit unions occupy a distinct position in this ecosystem. As member-owned cooperatives, they are deeply embedded in the communities they serve and play a central role in mortgage, consumer, and small-dollar lending.

Historically, credit unions have relied heavily on member deposits as a primary funding source. That foundation remains strong. However, as noted in a recent study by the Urban Institute, the sector has become larger and more complex, increasing the importance of contingent liquidity and diversified funding sources.

As a result, liquidity management has evolved from a back-office function into a strategic element of lending capacity. Credit unions increasingly operate in an environment where access to flexible funding supports continuity in lending across different market conditions.

The FHLBank System as liquidity infrastructure

The Federal Home Loan Bank System (FHLBank System) was established in 1932 during the Hoover administration in response to severe strains in the nation’s housing and mortgage markets. The FHLBanks were created to promote financial stability and support housing finance by providing reliable liquidity to member institutions. Nearly a century later, that core function remains central to its role in the housing finance system.

Through collateralized advances and a range of housing and community investment programs, the FHLBanks provide member institutions – including credit unions – with access to dependable secured funding designed to support lending activity and balance sheet liquidity across economic cycles.

FHLBank liquidity is not a substitute for deposits, but a complement to them, providing additional flexibility to manage balance sheets, support lending pipelines, and respond to changing market conditions. Over the past two decades, credit union participation in the FHLBank System has expanded significantly, from 658 members in 2002 to more than 1,600 today. Moreover, in 2002, FHLBank-member credit unions held just under half of total credit union assets. By 2024, that share had risen to more than 92%, according to the Urban Institute.

Policy alignment and system function

The convergence of executive and legislative attention on housing finance reflects a broader shift in focus. Policymakers are increasingly examining not only housing supply, but also the efficiency of credit delivery within the financial system.

In this context, the relationship between local lenders and liquidity infrastructure becomes particularly relevant.

Credit unions serve as front-line institutions for mortgage origination and consumer lending. The FHLBank System provides a daily-access source of secured wholesale funding that supports ongoing lending, balance sheet management, and liquidity needs across all market conditions. Together, they function as complementary components of housing finance infrastructure.

Why this moment matters

Today’s housing market continues to face pressure from multiple directions. Elevated interest rates have increased borrowing costs, while constrained supply continues to place upward pressure on prices. At the same time, financial institutions are managing more complex balance sheets in a more dynamic funding environment.

Credit unions and the FHLBank System each play distinct but complementary roles in this evolving landscape. Their interaction helps ensure that national housing policy objectives translate into consistent lending capacity at the local level.

As federal attention turns toward improving housing finance market functioning, the importance of this underlying infrastructure remains central.

Ultimately, housing outcomes depend not only on how many homes are built, but on how effectively credit flows to the people and communities who need it.