A controversial proposal to curtail Federal Home Loan bank investments in mortgage-backed securities will return in March, Federal Housing Finance Board Chairman Bruce A. Morrison said in a letter.

The proposal is part of a broader plan issued in the summer by the finance board. But the regulatory body pulled the package Monday to clear the slate for reform law provisions that affect the Home Loan Bank System.

Like the financial reform law, the finance board proposal had called for big changes, including risk-based capital requirements and voluntary membership for thrifts as well as banks. The board has scheduled a series of regulations to be introduced beginning in December to match the finer points of the reform law.

Rather than invest in mortgage-backed securities to boost earnings for the Home Loan banks and, in turn, dividends for the member banks and thrifts, the board is pushing for them to invest in private partnerships with banks and thrifts. In these partnerships, the Home Loan banks buy mortgages from their members and share the income stream and the risks. The traditional business of Home Loan banks has been to advance funds to banks and thrifts for originating mortgages. -- Katharine Fraser

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