S&P Eyeing FHLBank Investments

After lowering the Federal Home Loan Bank of New York's credit rating, Standard & Poor's analysts are starting to worry about the ability of the FHLBanks to manage interest rate risk on their investments in whole mortgage loans and mortgage-backed securities.S&P credit analyst Michael DeStefano pointed out that the Pittsburgh FHLBank recently reported that it had problems hedging whole loans it purchased as part of the Mortgage Partnership Finance program. "We are taking a close look at all the banks," Mr. DeStefano said during a conference call. He said the asset quality problems the New York FHLBank had with its manufactured housing securities are mostly confined to the New York bank. However, the other FHLBanks have invested more heavily in MBS and MPF-type loans. "We are not forecasting or predicting problems at any of the other banks," the S&P analyst said. "But it is an area we want to look at … given where we are in the interest rate cycle."