FHLBank Leader Is Wary of MBS Authority

Legislative efforts to get the Federal Home Loan Banks involved in mortgage securitization has the potential to "destroy" the FHLBanks, according to a FHLBank president.

FHLBank of New York president Alfred DelliBovi is concerned about the risks involved in securitization and the impact it could have on the FHLBanks traditional advance lending business.

He even raised the specter that securitization could lead to consolidation of the 12 FHLBanks.

But he also is concerned that supporters of securitization are diverting attention away for the real purpose of a GSE bill, which is to improve and strengthen the regulation of Fannie Mae, Freddie Mac and the FHLBanks.

"Securitization would involve opening up the charters of the government-sponsored enterprises. A wrong path at the wrong time," he told the New Jersey Bankers Association.

Several banking groups that represent the majority of FHLBank members are concerned about timing of a securitization amendment that would authorize the FHLBanks to guarantee and issue mortgage-backed securities.

The Mortgage Bankers Association and National Association of Home Builders are pushing the amendment so that the FHLBanks can compete directly with Fannie and Freddie in the MBS market and increase competition.

However, the American Bankers Association, Indep-endent Community Bankers of America and America's Community Bankers are more concerned about how the FHLBanks will be treated under a new GSE regulator than about securitization powers.

"We don't think this is the appropriate time to look at it," said ICBA director Ann Grochala. "It would slow down the [GSE] bill and we don't want that to occur."

ABA has taken a similar position. "We didn't think this is procedurally the right time to bring this up. This is not what the legislation is about," senior counsel Joe Pigg told this newspaper.

He noted that ABA is very supportive of the mortgage purchase programs and ABA believes the current FHLBank regulator has the authority to approve a securitization program.

Mr. DelliBovi also revealed in his speech that the New York FHLBank is limiting its purchases of mortgage loans under the Mortgage Partnership Finance program.

The FHLBank has limited deliveries of MPF loans from each member bank and thrift to $100 million annually.

"Our objective at the Home Loan Bank is to provide a better deal for our members than they can get elsewhere and at the same time maintain growth of MPF assets on our books at a manageable rate," the bank president said.

The New York bank currently holds $1.2 billion in MPF loans, which represents 1.4% of total assets.

Mr. DelliBovi indicated his bank has not set a strict limit on MPF assets. "It is really a function of our ability to hedge the assets and the costs of hedging," he said. "Looking at current interest rates, we won't want to go above 5%" of total assets.

He also noted that prudently managing the bank's MPF holdings negates the need for securitization.

"Securitization is the antacid for the ingestion created by too many mortgages," Mr. DelliBovi said in an interview.

In his speech to the New Jersey bankers, the FHLBank president raised questions about the ability of the banks to run a MBS program and whether it would require the formation of a holding company to issue FHLBank-guaranteed MBS. "Is this the first step on the road to consolidation of the 12 Home Loan Banks into a third Fan or Fred? Do the Home Loan Banks even have the knowledge, skills and experience to securitize mortgages?" he asked.

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