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FHLB Volume Strong

FHLB Volume Strong

$640 billion in outstanding advances on June 30

August 30, 2007

By PATRICK CROWLEY

photo of Patrick Crowley
Federal Home Loan Bank system executives report increased cash advances to member institutions.

Nine of the 12 banks in the nationwide system — a government sponsored enterprise created to provide liquidity to more than 8,000 lenders — reported increased lending in the second quarter, according to a MortgageDaily.com review of the banks’ financial statements.

Overall, the banks had advance originations of $3.507 trillion during the first half of 2007, easing from $3.604 trillion a year earlier. But advances are growing more significantly during the third quarter, bank officials say.

FHLB advances are secured by residential and commercial mortgages held by member institutions as well as small business and agricultural loans.

The outstanding advances at the end of June were $640.0 billion.

Although many of the banks don’t discuss financial information other than in quarter, annual or other mandated statements and reports, others said that lending activity picked up in August, when the credit markets were rattled by the shakeout in the subprime lending industry.

“We’re seeing an increase in advances because homebuyers and coming back to community lenders and community banks,” Alfred A. DelliBovi, CEO of the Federal Home Loan Bank of New York told MortgageDaily.com.

Advances totaled $2 billion during the second week of August, the FHLB of New York reported.

“And those community lenders are members of the Home Loan Bank of New York,” DelliBovi said. “We see a demand for members needing liquidity so they can keep doing business.

“Investors are not interested in mortgages, they are interested in big returns,” he said. “They’d be buying tulips if buying tulips offered a big return. But community banks, the members of the home loan bank system, are charged to do housing — and they are coming here.”

The FHLB of Atlanta advanced $7 billion to members during the first two-and-half weeks of August, spokesman Christopher McEntee confirmed to MortgageDaily.com.

“We have seen a rise in advance demand from member financial institutions, but given the situation, this is expected,” McEntee said in an email. “Lenders look to the Federal Home Loan Banks as a dependable source of liquidity and we will continue to support their funding needs.”

Countrywide Financial Corp., which has been battered by subprime woes and the lingering credit crunch, said in an Aug. 2 filing with the Securities and Exchange Commission that it may seek as much as $11.9 billion in advances from the Atlanta FHLB.

The Cincinnati FHLB also experienced an increase this month in loans, but spokesman John Byczkowski would not divulge any details.

“This is what we do,” Byczkowski said in an interview. “Obviously our terms are more favorable than anywhere else. Banks have ongoing funding needs, including some of the bigger variety, and Wall Street is real tough right now. The money they need just can’t be raised there, and they are getting better terms from us.”

At the Seattle FHLB advances “continued to increase throughout July and into August, with advances outstanding at $32.1 billion as of Aug. 9,” the bank said in a statement. “Increasing advance volumes reflect, in part, a recent increase in volatility and widening of credit spreads in the capital markets.”

“Our members rely on the Seattle Bank cooperative for backup liquidity, and we are here to meet their needs,” bank CEO Richard M. Riccobono said in the statement. “As other sources of liquidity have become more constrained, they have turned to us for funding, and our advance volumes have increased accordingly.”


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