FHLB Seattle Rights Itself After Shedding Secondary Mortgage Market Program

SEATTLE – The Federal Home Loan Bank of Seattle, which was ordered by regulators to exit its secondary mortgage market program, continued to report improved financials Friday, announcing second quarter earnings of $14.6 million, up from $2.4 million for the second quarter last year. Since the end of 2004, the FHLB has sold off half of its holdings in the secondary mortgage market program and now holds less than $6 billion worth. Eighty-five percent of its mortgages were originated by WaMu, its biggest member. The involvement in the secondary market caused the Seattle Bank to run up as much as $400 million in paper losses on its hedging portfolio and forced federal regulators to enact a strict supervisory plan, since lifted, to strengthen its finances. Since then, the Bank has focused on its core mission to provide low-cost funding to banks, credit unions and other mortgage lenders. For the first two quarters the Seattle Bank reported earnings of $25.2 million, more than double the $10.5 million reported for the first half last year. The increases in net income for the three- and six-month periods primarily were due to an increase in net interest income resulting from reinvesting proceeds from maturing low-yielding investments, including, among others, the consolidated obligations of other FHLBanks, into higher-yielding short-term investments such as federal funds.