FHLB Plan Wipes Out Millions In CUPayouts

WASHINGTON - (05/20/05) -- The Federal Housing Finance Boardsaid Thursday it approved an extraordinary supervisory agreementwith the Federal Home Loan Bank of Seattle which will require theFHLB to wind down its troubled secondary mortgage market programand to eliminate all member dividends for the next three years,wiping out millions of dollars in payouts to the bank's 79 creditunion members. The capital restoration plan calls for the Seattlebank to exit its Mortgage Purchase Program, which has been troubledby prepayments on mortgages, by selling off the existing assetsover time, and to bar all stock repurchases by bank and creditunion members before the mandatory redemption period. The bankreported Wednesday that troubles in its secondary market program,combined with massive losses in interest-rate derivatives, caused a50% drop in net income for 2004 and required it book $260 millionin unrealized losses on its hedging portfolio. The bank dismissedtwo of its directors last month after an internal investigationdiscovered their banks had redeemed $74 million of stock while newsof the declining financials were not yet made public.