FHLB Role Seen In Mortgage BackedSecurities Market

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WASHINGTON - (04/15/05) -- Congress is considering whether toallow the Federal Home Loan Banks, which have become growingplayers in the secondary mortgage market, to issue mortgage backedsecurities as part of a broad reform of the secondary market beingdebated. Senate Banking Committee Chairman Richard Shelby, R-Ala.,said during reform hearings Wednesday he is interested in the idea,but stopped short of endorsing a role for the FHLBs in the MBSmarket. Shelby's remarks followed a call by Alex Pollock, formerpresident of the FHLB of Chicago and now a scholar at the AmericanEnterprise Institute, to allow the 12 regional banks to issue MBSsin a market now dominated by giants Fannie Mae and Freddie Mac."It's a logical extension for the FHLBs," said Pollock. "It wouldaddress the existence of a powerful duopoloy in the mortgagesecuritization business, which generates exceptional profits forFannie and Freddie." Mortgage backed securities, which general paya premium of 40-to-50 basis points over comparable Treasurysecurities, are among the favored investments for credit unions,which held about $20 billion worth of MBSs at year-end2004.

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