FHLBanks May Play Bigger Role in MBS

Passage of a landmark housing bill that revamps the supervision of the Federal Home Loan Banks also has laid the groundwork for the 12 banks to play a larger role in purchasing and possibly securitizing residential mortgages in the future.

The bill creates a new regulatory agency to oversee the housing government-sponsored enterprises - Fannie Mae, Freddie Mac and the FHLBanks. And it directs the new Federal Housing Finance Agency to conduct a study on the "benefits and risks" of allowing the FHLBanks to securitize mortgages that they purchase from member financial institutions.

Although this study was added to the GSE regulatory reform title of the bill several years ago, it could have added importance today due to problems plaguing the secondary mortgage market.

It is a "good time" for a new GSE regulator to examine the securitization issue, said Indianapolis FHLBank president Milton Miller.

"With securitization, the FHLBanks will benefit by having a new risk management tool to better manage balance sheet growth, making our programs more reliable and cost competitive with other secondary market purchasers." He noted that Indiana Sen. Evan Bayh supported inclusion of the securitization study in the final housing bill.

Des Moines FHLBank president Richard Swanson said the FHLBanks don't have to follow the traditional model of guaranteeing MBS. "It doesn't have to be like Fannie Mae and Freddie Mac," he said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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