FHLB Seattle Trims Its Hedges

SEATTLE - The Federal Home Loan Bank of Seattle reported it had turned around failed interest-rate bets to post healthy financials for its fourth quarter and fiscal 2006, a $6.2-million and $25.8- million net, respectively.

That compares to a $3.3 million loss for last year's fourth quarter, and a $1.7 million profit for fiscal 2006. The Bank, weighted down by poor interest-rate hedges, was forced by a 2005 supervisory agreement to scrap its secondary market program and return to its primary mission, providing low-cost mortgage funding to its bank and credit union members.

The bank ran into trouble in 2004 when it tried to hedge the mortgages it acquired under its Mortgage Partnership Finance program, running up losses of $15.6 million for 2004 and $26.5 million for 2005, according to a filing with the Securities and Exchange Commission.

But after scrapping the secondary market program, selling off most of the mortgages, and realizing losses on some of the instruments, the Seattle Bank was able to book a slight $470,000 gain on its hedging instruments for 2006.