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Federal Home Loan Banks Expect Loss

October 09, 2003|From Reuters

Expected losses at Federal Home Loan Banks in Atlanta and Pittsburgh fanned fears about the integrity of the U.S. mortgage funding system and fueled calls for stricter regulation of the government-sponsored network that funds mortgages.

The bank in Atlanta said Wednesday that it expected to record a $9-million loss for the third quarter while the one in Pittsburgh said it forecast a $7-million loss. At the same time, both banks decided to pay third-quarter dividends, which concerned some members of their regulating board.

The banks, part of a government-sponsored network that funds mortgages, said their third-quarter losses stemmed from historically low interest rates that pinched interest income and market values on their derivative holdings.

The losses add to the tarnished image of the FHLB system, already hurt by bad investments at the New York bank, and could add to pressure for the banks to share a new, strengthened regulator with Fannie Mae and Freddie Mac.

Leading Republican lawmakers have been calling for stronger oversight of Fannie Mae and Freddie Mac after an accounting scandal at Freddie Mac rattled markets this year.

"Often bad news helps focus people's minds on the problem," Wayne Abernathy, the Treasury's assistant secretary for financial institutions, said Wednesday. "If we can get the home loan banks included in there, by all means, let's do it."

On Tuesday, the Bush administration criticized as not strong enough a House proposal, led by Rep. Michael G. Oxley (R-Ohio), to overhaul supervision of the multi-trillion-dollar U.S. mortgage finance system.

FHLB, Freddie Mac and Fannie Mae were created by Congress to increase home ownership by offering cheap financing to banks and other lenders so they could make more loans to borrowers.

FHLB, owned by commercial banks, thrifts and credit unions, is regulated by the Federal Housing Finance Board.

Publicly traded Fannie Mae and Freddie Mac are supervised by the Department of Housing and Urban Development and the Office of Federal Housing Enterprise Oversight.

FHLB had been the least criticized of the three finance agencies until the New York FHLB last month reported a loss of nearly $200 million.

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