Seattle Home Loan Bank's Plan To Buy Mortgages Called Risky

Allowing the Federal Home Loan Bank of Seattle to buy mortgages from member institutions would be unnecessarily risky, according to comment letters filed with the government this week.

"A pilot program in which a Federal Home Loan Bank holds an equity interest in mortgage loans exposes the system to additional credit and interest rate risks," wrote Dean Schultz, president of the Federal Home Loan Bank of San Francisco.

Under a trial program proposed last month, member institutions would originate Federal Housing Administration-insured loans that benefit low- and moderate-income families. If approved by the Federal Housing Finance Board, the institutions would sell the mortgages to the Seattle Home Loan bank, which initially would be allowed to buy up to $25 million of the loans.

World Savings senior vice president Dan R. Dixon argued that Congress has not authorized the 12 Federal Home Loan banks to own mortgages directly.

He added that the objective of increasing homeownership for low- and moderate-income families could be achieved in other, less risky ways, such as funding traditional advances securitized by the loans that the Seattle district bank is proposing to buy under the pilot.

"There does not appear to be any compelling reason to pursue this pilot," Mr. Dixon said.

Other industry officials were more supportive.

"In the absence of such a program, many of these loans would not be made and families would miss out on the opportunity to own their own homes," wrote John L. Bley, director of the Washington Department of Financial Institutions.

The Seattle pilot involves the FHA 203 program, under which nonprofit organizations or government housing authorities enter into lease-to-own agreements with families. A portion of each lease payment is set aside until the amount accumulated is sufficient to make the required 3% down payment required for the FHA loan.

Even the Western League of Savings Institutions, which has opposed prior pilot mortgage programs approved by the finance board, did not object to the specifics of the Seattle plan.

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