[Federal Home Loan Banks] Free Falling
More Cards Set to Fall
Courtesy of Michael Panzner, at Financial Armaggedon
That’s the thing about a house of cards. Only one of the supporting elements has to wobble or break loose before the rest follow suit.
That pretty much sums up where we are nowadays. It started with the subprime mortgage lenders. Then came the banks, the Wall Street firms, the government-sponsored agencies, and the hedge funds.
Now, according to the New York Post, in a report entitled "Don’t Bank on It," another layer of cards — er, financial institutions — appears set to fall.
FHLBs Fall; Look for $$
Two-thirds of the Federal Home Loan Banks, their balance sheets weakened by investments in toxic mortgage securities, could be forced to turn to the federal government for a rescue that could reach as high as $13.5 billion.
Already, several of the crippled FHLBs, the largest source of mortgage credit in the country, have stopped paying dividends to member banks, which are smaller banks and thrifts, which could lead to an increase in mortgage rates or in a noticeable decrease mortgage availability.
On Friday, FHLB Pittsburgh, one of the largest of the 12 regional bank-owned FHL Banks with $99 billion in assets, told its member banks that it is on the brink of falling below regulatory capital levels.
Paul Miller, a banking analyst with Friedman Billings Ramsey, told The Post it was likely an Obama Treasury Dept. would provide TARP money to prop up the FHLBs because having a chain of mortgage banks fail would automatically make mortgage rates go up…
FHLB Pittsburgh admitted Friday that at least one-third of their $8.8 billion in mortgage-backed securities are trading at 65 cents on the dollar…
The 12 FHLB heads wrote a letter last week to the accounting standards board asking for a change in the rules that will allow them to keep from marking the mortgage bonds to their actual value.
Some troubled FHL Banks are also asking their regulator to drop the ratio. But sources inside the Federal Housing Finance Agency say that is unlikely to happen because the regulator’s first goal is to preserve capital – not to Band-Aid failed balance sheets.
The FHLB Banks are not automatically qualified for TARP money and will need their regulator, James Lockhart, to lobby Washington.
