The combined earnings of the 12 Federal Home Loan Banks fell 2.8% to $628 million in the second quarter from the level recorded a year earlier, according to a preliminary report by the FHLBanks' Office of Finance.The second-quarter report also shows that assets grew by only 2.0%, to $1.02 trillion, and advances were flat, at $640 billion, over the previous four quarters. The FHLBanks are major investors in Fannie Mae and Freddie Mac mortgage-backed securities, and they are allowed to invest in subprime MBS. "Each FHLBank believes it has limited exposure to subprime loans due to its business model, conservative policies pertaining to advances collateral and investments, and low credit risk due to the design of its mortgage loan programs," the Office of Finance said. In the first quarter, the FHLBanks held $75.5 billion in private-label securities, which are generally rated triple-A. A second-quarter update of their private-label MBS holdings is not yet available. The Office of Finance can be found online at http://www.fhlb-of.com.

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