Congress is mulling changes to the Federal Home Loan Bank system, set up as a liquidity source for home mortgage lenders, into a new government sponsored enterprise to buy and securitize mortgages or other assets.

These and other options are explored in a recent Congressional Budget Office study, The Federal Home Loan Banks in the Housing Finance System, ordered by the Housing and Community Development Act of 1992.

In the act, Congress recognized hat GSEs such as Fannie Mae and Freddie Mac, as well as Wall Street companies, have largerly supplanted the FHLBs original liquidity mission.

The CBOs 65-page report concludes that transforming the FHLB system into a CSE to securitize conforming home mortgages would be relatively simple because the risks and returns are well-known.

By, by the same token, it's unclear whether such an FHLB offspring could compete with Fannie Mae and Freddie Mac, or whether a new CSE is needed.

Moreover, the FHLB staff lacks expertise in securitization. Even if a new Fannie or Freddie cousin were deemed sense to build one from scratch. The CBO is working on another study, slated for release Oct. 28, examining the advisability of privatizing Fannie Mae and Freddie Mac.

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