A top federal housing regulator on Tuesday shut the door on mortgage investors who had been using a loophole to access low-cost, government-backed financing.

The Federal Housing Finance Agency said so-called captive insurance companies, which insure the risks of the companies that own them, no longer will be eligible for membership in government-backed federal home loan banks.

The 11 regional federal home loan banks advance loans to commercial banks, savings banks, insurers and credit unions to help fund mortgages and community investments.

The FHFA, which proposed the change in September 2014, said captive insurers that joined before the proposal would have their membership sunset over five years, while those that joined between the proposal and final rule would have one year.

The move is likely to disappoint mortgage real-estate investment trusts, their investors and others in the real-estate industry who had argued the investment firms help promote mortgage lending by buying loans as other big mortgage investors, such as the Federal Reserve and mortgage-finance companies Fannie Mae and Freddie Mac, wind down or prepare to wind down their portfolios.

On Tuesday, the FHFA also said it would withdraw two other provisions related to FHLB membership that would have required members to maintain a minimum level of investment in mortgage assets.

Write to Joe Light at joe.light@wsj.com

 

(END) Dow Jones Newswires

January 12, 2016 11:45 ET (16:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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