November 23, 2022 

Mr. Martin Gruenberg 

Acting Chairman 

Federal Deposit Insurance Corporation 

550 Seventeenth Street NW 

Washington, DC 20429 

Dear Acting Chairman Gruenberg: 

This letter concerns the request by HomeStreet Bank, Seattle, Washington, 

a state nonmember bank, for an exemption from certain requirements of section 23A of 

the Federal Reserve Act1

 to engage in an internal corporate reorganization through which 

HomeStreet Bank would acquire its affiliate, HomeStreet Capital Corporation (“Capital” 

and, together with HomeStreet Bank, the “HomeStreet organization”), also of Seattle, 

Washington. The proposed acquisition would consolidate the HomeStreet organization’s 

lending activities under the Federal National Mortgage Association’s Delegated 

Underwriting and Servicing mortgage-backed security program (the “DUS program”) 

within HomeStreet Bank. HomeStreet Bank would acquire Capital’s assets for no 

consideration, but would assume Capital’s liabilities, including contingent liabilities 

related to Capital’s loan portfolio. Following the reorganization, Capital would be 

dissolved. 

Section 23A limits the amount of covered transactions between a bank and 

any single affiliate to 10 percent of the bank’s capital stock and surplus, and limits the 

amount of covered transactions between a bank and all of its affiliates to 20 percent of the 

bank’s capital stock and surplus.2

 Covered transactions include a bank’s purchase of 

assets from an affiliate.3

 In addition, section 23A and Regulation W prohibit a bank from 

purchasing low-quality assets from an affiliate.4

Under section 23A, an affiliate includes “any company that controls the 

member bank and any other company that is controlled by the company that controls the 

1

 12 U.S.C. § 371c. 

2

 12 U.S.C. § 371c(a)(1).

3

 12 U.S.C. § 371c(b)(7)(C); 12 CFR 223.31. 

4

 12 U.S.C. § 371c(a)(3); 12 CFR 223.15. 
- 2 -

member bank.”5

 HomeStreet Bank and Capital are both wholly owned subsidiaries of 

HomeStreet, Inc., Seattle, Washington. Accordingly, Capital and HomeStreet Bank are 

affiliates for purposes of section 23A.

Although HomeStreet Bank would acquire Capital’s assets for no 

consideration, it would assume Capital’s liabilities, including contingent liabilities related 

to Capital’s loan portfolio and participation in the DUS program.

6 The covered 

transaction is valued at $444.0 million, which is the maximum amount of liabilities that 

HomeStreet would assume from Capital, including contingent liabilities, and represents 

52 percent of HomeStreet Bank’s capital stock and surplus as of September 30, 2022.

This transaction exceeds the quantitative limits in section 23A for covered transactions 

both with a single affiliate and with all affiliates. HomeStreet Bank seeks an exemption 

from the quantitative limits of section 23A to assume Capital’s liabilities in connection 

with the proposed internal corporate reorganization. 

Because HomeStreet Bank is a state nonmember bank, the Federal Deposit 

Insurance Corporation (“FDIC”) may, by order, exempt the proposed investment from 

the requirements of section 23A if the Board and FDIC jointly find the exemption to be 

(i) in the public interest and (ii) consistent with the purposes of section 23A.7

 The FDIC 

also must find that the exemption does not present an unacceptable risk to the Deposit 

Insurance Fund.

8

HomeStreet Bank asserts that the proposed transaction is in the public 

interest because the proposed reorganization would achieve efficiencies and cost savings

and improve its ability to provide products and services to customers. Following the 

proposed transaction, HomeStreet Bank, which has been authorized as a DUS program 

lender, would conduct all DUS program lending on behalf of the HomeStreet 

organization. 

The proposed transaction appears to be consistent with the purposes of 

section 23A. The Board previously has stated that the dual purposes of section 23A are 

to protect against a depository institution suffering losses in transactions with affiliates 

and to limit the ability of a depository institution to transfer to its affiliates the subsidy 

5

 12 U.S.C. § 371c(b)(1)(A). Section 23A applies to a nonmember insured bank in the 

same manner and to the same extent as if the nonmember insured bank were a member 

bank. 12 U.S.C. § 1828(j)(1).

6

 For loans that participate in the DUS program, Capital shares losses with the Federal 

National Mortgage Association.

7

 12 U.S.C. § 371c(f)(2)(B)(ii)(I).

8

 12 U.S.C. § 371c(f)(2)(B)(ii)(II).
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arising from the institution’s access to the federal safety net.9

 The Board previously has 

approved exemptions for one-time asset transfers that are part of an internal corporate 

reorganization and are structured to ensure the transferred assets’ quality.10 HomeStreet, 

Inc. has provided commitments listed in the Appendix, similar to those relied upon by the 

Board in granting section 23A exemptions to allow previous internal corporate 

reorganizations, to ensure that HomeStreet Bank is protected from losses should the 

quality of the assets purchased by the bank in connection with the proposal deteriorate. 

In light of these considerations and all the facts presented, the Director of 

the Division of Supervision and Regulation, pursuant to authority delegated by the Board, 

and with the concurrence of the General Counsel, finds that the proposed exemption is in

the public interest and consistent with the purposes of section 23A. 

This action is specifically conditioned on compliance by HomeStreet, Inc., 

and HomeStreet Bank with all the commitments they have made to the Board in 

connection with this exemption request. The commitments constitute conditions imposed 

in writing in connection with this action and, as such, may be enforced in proceedings 

under applicable law. This determination is based on the specific facts and circumstances 

described in HomeStreet Bank’s correspondence and this letter. Any change in the facts 

or circumstances may result in a different conclusion or revocation of the findings in this 

letter. This action also is specifically conditioned on receipt by HomeStreet, Inc., and by 

HomeStreet Bank of all regulatory approvals required by the proposal and compliance 

with any conditions imposed in connection with such approvals. 

 Sincerely yours, 

Michele Taylor Fennell 

Deputy Associate Secretary of the Board 

cc: John Michel, HomeStreet Bank 

9

 67 Fed. Reg. 76,560, 76,560 (Dec. 12, 2002). 

10 See, e.g., Letter from Robert deV. Frierson, Deputy Secretary of the Board, to William 

J. Sweet, Jr., Esq. (Apr. 13, 2009),

https://www.federalreserve.gov/supervisionreg/legalinterpretations/federalreserveact2009

0413.pdf (CIT Group Inc.); Letter from Robert deV. Frierson, Deputy Secretary of the

Board, to Andres L. Navarette, Esq. (Dec. 21, 2007),

https://www.federalreserve.gov/supervisionreg/legalinterpretations/federalreserveact2007

1221.pdf (Capital One Financial Corporation).

Michele Taylor Fennell (signed)
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Appendix 

In connection with the request filed by HomeStreet Bank, Seattle, Washington, to 

the Federal Deposit Insurance Corporation for an exemption from the requirements of 

section 23A of the Federal Reserve Act1

 in order to engage in an internal corporate 

reorganization through which HomeStreet Bank would acquire its affiliate, HomeStreet 

Capital Corporation, Seattle, Washington (“Capital”), HomeStreet Bank and Capital’s 

parent holding company, HomeStreet, Inc., Seattle, Washington (“HomeStreet”), and 

HomeStreet Bank provide the following commitments to the Board of Governors of the 

Federal Reserve System: 

1. HomeStreet commits that it will contribute funds to HomeStreet Bank in the

amount of the book value of any low-quality assets that are transferred to

HomeStreet Bank at the time that Capital is transferred to HomeStreet Bank.

HomeStreet and HomeStreet Bank also commit that HomeStreet Bank will

hold an amount of risk-based capital equal to the book value of any low-quality

assets that are transferred to HomeStreet Bank so long as HomeStreet Bank

retains ownership or control of the transferred assets.

2. HomeStreet commits for a two-year period following the internal corporate

reorganization to make either (i) a cash payment to HomeStreet Bank equal to

the book value at the end of each calendar quarter plus write-downs during that

quarter by HomeStreet Bank of any transferred assets (other than those that

were low-quality assets at the time of the initial transfer) that were low-quality

assets at the end of that quarter; or (ii) quarterly purchases from HomeStreet

Bank of any transferred assets (other than those that were low-quality assets at

the time of the initial transfer) that were low-quality assets at the end of that

quarter at a price equal to the book value at the end of that quarter plus writedowns during that quarter by HomeStreet Bank of any such transferred assets.

HomeStreet will make the cash payment or will purchase the assets within

30 days after the end of each calendar quarter. HomeStreet and HomeStreet

Bank also commit that HomeStreet Bank will hold an amount of risk-based

capital equal to the book value of any transferred assets that become lowquality so long as HomeStreet Bank retains ownership or control of the

transferred assets as described in the example above.

3. Upon the effective date of the internal corporate reorganization, HomeStreet

will agree to indemnify Bank for any loss share payments or losses incurred by

1

 12 U.S.C. § 371c. 
- 5 -

the Bank as a result of Fannie Mae (“FNMA”) exercising its rights under the 

loss share agreement between FNMA and Capital to the extent that the 

aggregate of such losses exceeds the total stockholder's equity of Capital as of 

the Date of the Contribution. This indemnification will apply to any Delegated 

Underwriting and Servicing (“DUS”) loans sold to FNMA by Capital and shall 

remain in place for as long as any DUS loans sold to FNMA by Capital remain 

outstanding, and thereafter for so long as FNMA has a right to bring a claim 

for any such loans.

4. Before the internal corporate organization is consummated, a majority of 

HomeStreet Bank’s directors will review and approve the transaction.

HomeStreet and HomeStreet Bank agree that these commitments are deemed to be 

conditions imposed in writing by the Federal Reserve System in connection with its 

findings and decision on the exemption request and, as such, may be enforced in 

proceedings under applicable law. 

HomeStreet and HomeStreet Bank understand that, as a condition of any exemption, 

HomeStreet Bank must remain well capitalized based on the Federal Deposit Insurance 

Corporation’s risk-based capital guidelines and the modifications to those guidelines 

described in commitments (1) and (2) above.