Fannie Mae, Fedl Home Loan Bank Of Chicago To Provide Addl Liquidity And Stability To Mortgage Market
10/07 11:17 AM
DOW JONES NEWSWIRES
Mortgage lender Fannie Mae (FNM:$1.29,00$0.0000,0.00%) plans to buy 30- and 15-year fixed-rate mortgage loans from the struggling Federal Home Loan Bank of Chicago to provide liquidity and stability to the mortgage market.
Fannie will purchase loans channeled through the bank's Mortgage Partnership Finance program, which has provided funding to financial institutions for 11 years to make sure affordable mortgages are available.
FHLB of Chicago President and Chief Executive Matt Feldman said the mortgages provided through the program continue to perform well. He added the partnership with Fannie will make it easier for its 823 member banks and other financial institutions to continue offering competitively priced fixed-rate mortgages.
Last month, the U.S. government seized both Fannie and Freddie Mac (FRE:$1.4500,$0.0300,2.11%) , which are government-chartered, publicly traded backers of residential mortgages. Both have suffered mightily as the housing bubble burst, leaving them holding the bag when mortgages they backed soured.
The takeover has raised questions about the 12 regional Federal Home Loan Banks that were set up by Congress to help finance housing. Like Fannie and Freddie, they have long been able to borrow money inexpensively on the bond market because investors assume that the government would rescue them in a crisis.
The home-loan banks are among the world's biggest borrowers, with about $1.3 trillion of debt outstanding, compared with a combined $1.7 trillion for Fannie and Freddie. The home-loan banks' debt has ballooned 34% since the end of 2006 as they have taken on a bigger role in funding banks and thrifts amid a credit crisis that has choked off other sources of money.
Unlike Fannie and Freddie, the home-loan banks generally have been profitable despite the mortgage-default crisis. They reported combined net income of $718 million for the second quarter, up 14% from a year earlier. But one of them, the FHLB of Chicago, reported a loss of $152 million for the first half. The Chicago bank has been hurt by losses on mortgage investments caused partly by hedging costs related to interest-rate risks.
-By Shara Tibken, Dow Jones Newswires; 201-938-2168; shara.tibken@dowjones.com
(James R. Hagerty of The Wall Street Journal contributed to this report.)
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10-07-081117ET
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