Banks and thrifts, as well as consumers, would benefit if the 12 Federal Home Loan banks were put on a more equal footing with Fannie Mae and Freddie Mac, according to the system's regulator, Bruce A. Morrison.

The chairman of the Federal Housing Finance Board said the 12 Home Loan banks and their member banks and thrifts need lower capital requirements to compete with the two government-sponsored enterprises.

With lower capital requirements, banks and thrifts could use Home Loan bank advances to fund mortgages and keep them on their balance sheets, Mr. Morrison said in a speech last week. As things stand today, it's cheaper for lenders to sell the mortgages to Fannie Mae and Freddie Mac.

"It is wrong that we have these disparities," Mr. Morrison said. "It is important for me to point out as the regulator of institutions that serve the depositories that we don't have a level playing field."

The Federal Home Loan Bank of Chicago has taken a step toward stealing business from Fannie and Freddie with its Mortgage Partnership Finance pilot program, Mr. Morrison said.

The program allows member banks and thrifts to sell the interest rate risk portion of a mortgage to the Home Loan bank while continuing to service the loan and retaining the credit risk.

Fannie Mae spokesman David Jeffers noted that risk-based capital rules for Fannie Mae and Freddie Mac have been proposed and may increase their capital requirements. (See related story page 9.)

Any plan to let the Home Loan banks compete with the secondary market providers "must have an appropriate focus on regulatory oversight, strict capital standards, and the needs of consumers," he said.

In his speech, Mr. Morrison also touted legislation introduced last week that would modernize the Home Loan banks. Companion bills were sponsored in the Senate by Sens. Chuck Hagel, R-Neb., and Evan Bayh, D-Ind., and in the House by Reps. Richard Baker, R-La., and Paul Kanjorski, D-Pa.

The bills were quickly endorsed by America's Community Bankers, the American Bankers Association, the Council of Federal Home Loan Banks, the Independent Bankers Association of America, and the National Association of Home Builders.

The legislation would reduce the amount banks and thrifts would have to invest in a Home Loan bank to join. This would reduce the system's capital, which in turn would reduce the Home Loan banks' need to invest in capital markets-a controversial practice.

The system's investment portfolio has ballooned to $135 billion, though Mr. Morrison has said the Finance Board may issue a regulation this spring to curtail investments.

The Treasury Department has repeatedly criticized these investments as unrelated to the Home Loan banks' mission of funding housing and community development.

Treasury officials want to cut investments by two-thirds, capping them at no greater than a bank's assets plus member deposits.

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