I AM SHOCKED. i found this below so astonishing that i had to verify by looking at CFCs 10 Q . FHLB advances increased from $28 billion to $51billion since 12/31/ . I sure would like to know whether the FHLB is going out and getting new appraisals on their collateral. I was also more the mildly surprised to see a reserve of a little over $1 billion for $83 billion in mortgages. Talk about fairy tale financials. I expect that there will be yet a new government agency formed to work out the mortgage mess.
The Federal Home Loan Bank (FHLB) is acting as a de facto central bank by lending to these mortgage lenders.
Since Fannie Mae and Freddie Mac have had their reputations tarnished and balance sheet limits imposed (due to accounting scandals), the US government is using the FHLB as a hidden “backdoor” to support the mortgage credit market (instead of Fannie Mae/Freddie Mac as they used to do).
I found these excerpts to be very interesting:
Lenders turned to the FHLB as two main sources of funding, short-term IOUs backed by mortgages and mortgage-bond sales, began to dry up in August. That’s when losses on securities tied to subprime home loans began to spread throughout the credit markets and investors retreated to the relative safety of Treasuries and their equivalents.
The home loan banks “were the ONLY GAME IN TOWN for a lot of borrowers,'’ said Jim Vogel, head of agency debt research at FTN Financial a securities firm in Memphis, Tennessee.
Borrowing from the system during that period (Aug/Sept) was probably A RECORD for a two-month span, Vogel said. The FHLBs disclose their borrowing at the end of each quarter.
Calabasas, California-based Countrywide, the largest U.S. mortgage lender, ALMOST DOUBLED BORROWINGS from the Federal Home Loan Bank of Atlanta to $51 billion during the quarter, the company said in a statement last week.
Countrywide began to use the FHLBs in August as analysts at New York-based Merrill Lynch & Co. raised the possibility that the company could go bankrupt after it had trouble raising funds in the commercial paper market. Countrywide later sold a $2 billion stake to Charlotte, North Carolina-based Bank of America Corp., the second-biggest in the U.S. after Citigroup.
Out of Business?
“You don’t want to use the phrase `going out of business’ in the press, but they would be in a MUCH, MUCH WORSE LIQUIDITY POSITION if they didn’t have the Federal Home Loan Bank system sitting out there,'’ said Paul Miller, an analyst at Friedman Billings Ramsey Group Inc., a securities firm in Arlington, Virginia.
They (FHLB) borrow in the bond market and lend the money to their members. Federal Home Loan Bank obligations, when combined with the $1.5 trillion debt and $4.7 trillion in bond guarantees of Washington-based Fannie Mae and Freddie Mac in McLean, Virginia, are 46 percent more than the $5.04 trillion of Treasury debt held by the public. ($7.5 TRILLION!)
Let’s face it, the US government is effectively nationalizing the US real estate market. They indirectly own/guarantee $7.5 trillion of mortgage debt within a $20 trillion real estate market (40% of the total market).
Sounds great—add another $7.5 trillion to the existing $5 trillion national debt, our foreign creditors won’t mind.
Or will they? |
