The Federal Housing Finance Board moved Friday to reduce the system's non-mission-related investments.

The agency passed a resolution that would reclassify the types of investments Federal Home Loan banks could make. These investments would have to be directly tied to the system's housing-related mission.

The Home Loan banks could no longer invest in mortgage-backed securities purchased on the secondary market. Today many Home Loan banks depend on these assets for income.

Of the system's $137 billion investment portfolio, mortgage-backed securities represent $56.5 billion, or 41%.

"I understand where the Federal Housing Finance Board is coming from, but by the same token those of us in the system feel we can justify our activities," said Thomas B. Williams, vice president of government affairs at the Federal Home Loan Bank of Minneapolis.

Mr. Williams said the Finance Board's proposal could cut into the *Home Loan banks' profits, which would adversely affect the system's Affordable Housing Program.

However, the system is under political pressure to reduce the investment portfolio because critics feel Home Loan bank activities have extended beyond the mission of funding housing and community development.

At the Finance Board meeting Friday, Chairman Bruce A. Morrison said the proposal leaves the Home Loan banks with enough investing alternatives to fund their activities.

A formal regulation is expected to be proposed at the Finance Board's July 14 meeting, Mr. Morrison said.

Also on Friday, the Finance Board passed a temporary increase in the Home Loan banks' leverage limit, from 20 times total capital, to 25 times. The measure is intended to allow the banks to hold more cash in case member banks and thrifts need more funding to meet demand related to the year-2000 computer conversion.

The leverage ratio would revert back to 20 times total capital on June 30, 2000.

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