Senate Banking Committee Chairman Richard Shelby, R-Ala., says he would like to increase competition in the secondary mortgage market by allowing the Federal Home Loan Banks to issue mortgage-backed securities.However, he cautioned that it needs to be done "very carefully" and under the purview of a world-class regulator to avoid the recent problems that have cropped up at the Seattle Federal Home Loan Bank. Sen. Shelby, who is working on regulatory reform legislation involving the housing government-sponsored enterprises, made his remarks to reporters after a hearing on FHLBank issues. The Seattle FHLBank recently announced that it is exiting the mortgage purchase business because of losses on its mortgage portfolio. George Engelke Jr., chairman of the New York Federal Home Loan Bank, called the Seattle FHLBank situation "a little scary." He told the Senate Banking Committee that the interest rate problems at the Seattle FHLBank must have been going on for quite awhile before the regulator stepped in. "This bank got killed," he testified. Mr. Engelke urged the committee not to authorize a securitization program for the FHLBanks.

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