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Is the Federal Home Loan Bank System Hiding Risk ?

Started by morganb · 7 months ago

The Federal Home Loan Bank (FHLB) system was established in 1932 to fill the need for a stable funding source for residential mortgages created by the undermining of the American banking system during the Great Depression. Today, the 12 Federal Home Loan Banks and their members are the largest source of residential mortgage financing in [...] ... Continue reading »

2 comments

  • As an ex- bank portfolio manager, I can tell you that I used to borrow from the FHLB using loans and mortgage backed securities as collateral. I am hearing that the FHLB has been looking the other way throughout the entire crisis and hasn't marked to market collateral, worried that some banks might not be able to post more collateral or pay down their debt.

    If you borrowed 500mm and at the time posted 550mm in mortgage backed securities (which now are worth 60cents on the dollar or 330mm), you either have to post 220mm of additional collateral or pay down nearly half of the 500mm debt.
  • As a banking neophyte this post is a little hard for me to digest, but it appears the FHLB is making high risk loans and hiding it by purposefully not doing their homework. Shocking.

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