Financial Crisis Hits Home-Loan Banks

Cooperative Lenders May Need to Tap a Treasury Credit Line; Trouble Brewing in Seattle

By James R. Hagerty


The Federal Home Loan Bank of Seattle said it expects to fall short of one of its capital requirements because of a continuing drop in the value of certain mortgage-backed securities. The warning is the latest sign of the risk that the federal government may have to prop up some of the 12 regional home-loan banks, a vital source of funding for thousands of banks across the country, particularly small, local institutions. In September, the Treasury established a credit facility for the home-loan banks in case they have trouble raising money through their regular global debt sales. So far, they haven’t tapped that Treasury line. It’s “quite possible” one or more of the home-loan banks will need to use the credit line, said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington.