Tuesday, October 30, 2007

Federal Home Loan Banks Act As A Lender Of Last Resort......

You already know what is coming when you read this statement from FHLB ......

Jeder der diese Zielsetzung der FHLB liest weiß was kommen muß........

The mission of the Federal Home Loan Banks is to improve access to housing for all Americans by providing FHLBank members with lowcost mortgage funding and by supporting community development.
Everytime you think the fallout from the housing debt will hit the banks another "vehicle/institution" shows up that acts as a lender of last resort. Maybe the Bank of England should use this as a blueprint to solve their "problems". Stories like this remind me why i´m bullish on gold.......

Immer wenn man glaubt alles gesehen zu haben kommt der nächste Hammer und man fragt sich ob das wirklich stimmen kann. Schon praktisch wenn man sich bei Problemen praktisch unbegrenzt zu AAA Konditionen unabhängig vom Risiko mit Liquidität eindecken kann. Evtl. sollte die Bank of England dieses Modell zur Lösung Ihrer Probleme übernehmen. Solche Nachrichten bestätigen mich Tag für Tag in meinem bullishen Ausblick für Gold......

U.S. Tosses Lifeline to Lenders Using Home Loan Banks
Oct. 30 (Bloomberg) -- Banks shut out of the market for short-term loans are finding salvation in a government lending program set up to revive housing during the Great Depression.

Countrywide Financial Corp., Washington Mutual Inc., Hudson City Bancorp Inc. and hundreds of other lenders borrowed a record $163 billion from the 12 Federal Home Loan Banks in August and September as interest rates on asset-backed commercial paper rose as high as 5.6 percent. The government-sponsored companies were able to make loans at about 4.9 percent, saving the private banks about $1 billion in annual interest.

To meet the sudden demand, the institutions sold $143 billion of short-term debt in August and September, according to the FHLBs' Office of Finance. The sales pushed outstanding debt up 21 percent to a record $1.15 trillion, an amount that may become a burden to U.S. taxpayers because almost half comes due before 2009.

> The graph for 2007 is only including September. If this pace continues the numbers should be even more shocking.........

> Bedenkt bitte das diese Grafik nur die Zahlen bis einschließlich September beinhaltet. Leicht auszurechnen wie das am Ende des Jahres aussieht.......

The government is ``taking a lot of risks through the Federal Home Loan Banks that are unnecessary,'' according to Peter Wallison, a fellow at the American Enterprise Institute, a Washington-based organization that analyzes public policy, and general counsel at the Treasury Department from 1981 until 1985.

The home loan banks, known as FHLBs, are increasing risks to taxpayers by assuming the role as a lender of last resort, said Wallison. That's the job of the Federal Reserve, he said.

System Shock
A loss of confidence in the companies could prompt investors to dump FHLB debt, potentially causing the collapse of one or more banks, according to Wallison and lawmakers including Representative Richard Baker of Louisiana. If others were unable to meet the liabilities, taxpayers would be on the hook, they said.

The FHLBs are cooperatives created by President Herbert Hoover in 1932 to spur mortgage lending. The system's 8,100 owners and customers range from New York-based Citigroup Inc., the largest U.S. bank, to the single-branch Custer Federal Savings & Loan in Broken Bow, Nebraska. Their government ties support top AAA ratings from Standard & Poor's and Moody's Investors Service.

Bigger Than Government
They borrow in the bond market and lend the money to their members. Federal Home Loan Bank obligations, when combined with the $1.5 trillion debt and $4.7 trillion in bond guarantees of Washington-based Fannie Mae and Freddie Mac in McLean, Virginia, are 46 percent more than the $5.04 trillion of Treasury debt held by the public.

Lenders turned to the FHLB as two main sources of funding, short-term IOUs backed by mortgages and mortgage-bond sales, began to dry up in August. That's when losses on securities tied to subprime home loans began to spread throughout the credit markets and investors retreated to the relative safety of Treasuries and their equivalents.

Asset-backed commercial paper outstanding fell 25 percent to $883.7 billion as of last week from $1.18 trillion on Aug. 8, data compiled by the Fed show.

Sales of mortgage bonds, excluding those issued by Fannie Mae and Freddie Mac have tumbled by 66 percent to a monthly average of $39 billion from $115 billion in 2006, according to Friedman Billings Ramsey Group Inc., a securities firm in Arlington, Virginia.

`Only Game'
The home loan banks ``were the only game in town for a lot of borrowers,'' said Jim Vogel, head of agency debt research at FTN Financial a securities firm in Memphis, Tennessee. They are ``like an old watch your grandfather left you years ago, and you pull it out of the drawer and find it's the only timepiece you have.''

In July, lenders could raise funds by issuing one-month asset-backed commercial paper that yielded 1.8 basis points less on average than the one-month London interbank offered rate. A basis point is 0.01 percentage point.

In September, the asset-backed commercial paper, when it was available, cost as much as 51 basis points more than Libor. At the same time, the Federal Home Loan Bank of New York offered one-month funds at an average of 48 basis points below Libor, making their loans more attractive.

The FHLB's outstanding discount notes rose to a record $311 billion in the first three quarters, the most since 2001, according to data compiled by Zurich-based Credit Suisse Group.

Government Ties
FHLB loans probably will continue to grow in the next few months, though at a slower rate than during August and September, said Margaret Kerins, an agency debt strategist at RBS Greenwich Capital in Greenwich, Connecticut.

``Each day we seem to have new financial institutions announcing losses and so this probably isn't over,'' she said.

The home loan banks can lend at below-market rates because their government charter enables them to borrow more cheaply than other financial institutions. The ties to the government suggest the U.S. will bail them out in times of trouble.

The system sold $3 billion of two-year notes on Oct. 26 at a yield of 4.26 percent, or 46 basis points more than Treasuries of similar maturity. Stamford, Connecticut-based General Electric Co., also rated AAA, has $1 billion of notes due a month later that yield 4.6 percent.

Syndicated Global Bond Distribution
For bullet issues –September 1, 2006
thru October 5, 2007

> I would like to see which central bank is buying....

> Ich würde gerne wissen welche Zentralbank da kauft......

Some lawmakers said they are concerned the FHLBs are taking on too much debt after they were unable to account properly for their own risks.

Stricter Oversight?
Five of the banks, including the Atlanta and Pittsburgh branches, restated earnings from 2001 through 2004, while the Chicago and Topeka branches corrected mistakes from 2001 through 2003. All of them fixed accounting errors for financial contracts used to protect against swings in interest rates.

The mistakes at the home loan banks, as well as those at Fannie Mae and Freddie Mac, prompted Republican lawmakers to spend the past four years pushing for legislation to create a tougher regulator for the government-chartered enterprises. While the House passed legislation in May, the Senate Banking Committee has yet to do so.

The failure to create new laws ``is predicting disaster,'' Baker, a Republican on the financial services panel, said in an interview. The FHLBs ``have the potential for adverse economic impact if not properly administered,'' he said.

No Losses
The banks require borrowers to put up mortgages, mortgage bonds and other assets as collateral. None has experienced ``a credit loss on an advance to a member, ever,'' Ronald Rosenfeld, chairman of the Federal Housing Finance Board, the Washington- based regulator of the FHLBs, said in an e-mail.

The New York bank looks at detailed data on each asset when deciding how much to extend against it and doesn't accept delinquent loans or non-AAA rated bonds as collateral, Paul Heroux, its head of member services said in an interview.

``The home loan banks are extremely low-risk institutions,'' Allan Mendelowitz, one of five directors of the Federal Housing Finance Board, said in an interview. ``There is probably no contingent risk to the taxpayer.''

Investors said the same about mortgage securities, which had home loans as collateral and were given top AAA ratings by S&P and Moody's. Then defaults soared for loans to people with poor credit and some securities fell as much as 80 cents on the dollar.

A collapse would create ``tremendous pressure to have the taxpayer bear the cost of a bailout,'' said Representative Ed Royce, a Republican from California on the House Financial Services Committee.

Maturing Debt
The FHLBs have $276 billion of bonds maturing in 2008 and $174 billion in 2009, according to data compiled by Bloomberg. The system last week began to refinance about $144 billion of its so-called discount notes sold in August and September with maturities ranging from eight to 12 weeks, FTN's Vogel said.

Borrowing from the system during that period was probably a record for a two-month span, Vogel said. The FHLBs disclose their borrowing at the end of each quarter.

Calabasas, California-based Countrywide, the largest U.S. mortgage lender, almost doubled borrowings from the Federal Home Loan Bank of Atlanta to $51 billion during the quarter, the company said in a statement last week.

Countrywide began to use the FHLBs in August as analysts at New York-based Merrill Lynch & Co. raised the possibility that the company could go bankrupt after it had trouble raising funds in the commercial paper market. Countrywide later sold a $2 billion stake to Charlotte, North Carolina-based Bank of America Corp., the second-biggest in the U.S. after Citigroup.

Out of Business?
``You don't want to use the phrase `going out of business' in the press, but they would be in a much, much worse liquidity position if they didn't have the Federal Home Loan Bank system sitting out there,'' said Paul Miller, an analyst at Friedman Billings Ramsey Group Inc., a securities firm in Arlington, Virginia.

Washington Mutual, the largest U.S. savings and loan, boosted its borrowing from the FHLBs by $31 billion, the company said this month.

The Seattle-based lender's ``funding flexibility'' put it in ``a much stronger position to withstand the market disruptions of the third quarter,'' Chief Financial Officer Thomas Casey said on a Oct. 17 conference call with investors. Washington Mutual spokeswoman Libby Hutchinson declined to comment further.

Paramus, New Jersey-based Hudson City Bancorp, the third- largest thrift in the U.S., borrowed $800 million from the FHLBs in the third quarter, 25 percent more than a year earlier, said Chief Executive Officer Ronald Hermance.

``Even AAA rated credits were having a tough time issuing paper,'' Hermance said. ``It took everybody back to the Federal Home Loan Banks.''

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Blogger jmf said...

FHLB Presentation

11:30 PM  
Blogger jmf said...

Naked Capitalism

Federal Home Loan Banks Standing in for Commercial Paper Buyers

11:31 PM  
Blogger jmf said...

Cerberus withdraws $8bn offer for ACS

Cerberus Capital Management on Tuesday night withdrew its offer worth $8bn, including debt, to acquire Affiliated Computer Services, the US technology group, blaming the credit squeeze and the refusal of the company’s board to negotiate a deal. Teaming up with Darwin Deason, ACS chairman and founder, Cerberus was offering $62 per share in cash for the company, a significant premium to the closing share price of $50.85. The independent directors’ unwillingness to negotiate a deal with Cerberus could attract criticism from several large ACS shareholders that have been pushing the company to sell itself.

11:40 PM  
Blogger jmf said...

Cheyne Finance deal in doubt

A critical deal for troubled credit markets faced fresh uncertainty when doubts emerged over the proposed refinancing of the $6.6bn Cheyne Finance structured investment vehicle. Deloitte & Touche, acting as receivers for the SIV, said that an exclusivity period for RBS to arrange a deal between new investors and current creditors had lapsed without success. One person familiar with the situation said that senior creditors were holding out for a better price after an initial offer that would have led to them losing some money. Two-month euro Libor saw its fastest daily rise this decade on Tuesday, with the cost of borrowing euros for two months rising 28bp to 4.5875 per cent.

11:58 PM  
Blogger jmf said...

Taylor Wimpey sees sharp slowdown in U.S.

Recently merged U.K. home builder Taylor Wimpey said Wednesday that it's seen a significant slowdown in its U.S. operations in the last two months. It said heavy discounting by competitors has led to further price falls in many markets and a cancellation rate of around 30% in the third quarter. U.K. market conditions have been more subdued than in the first half, with fewer reservations, although prices have remained stable. The group said it is reviewing the carrying value of its North American land bank and expects to make further inventory provisions of around 15% of North American capital employed. The group also said its 2007 profit will be hit by a 38 million pound charge following a fair value review of the assets of George Wimpey, which included a decrease in value of 154 million pounds of its U.S. inventory. U.S. markets are expected to remain extremely tough throughout 2008, the group said.

Taylor Wimpey sees U.K. completion volumes 5% below 2006

That is how it started with the US builders 18 month ago....

12:30 AM  
Anonymous traderboy said...

It seems to me that the UK market has peaked, the euphoria seems to have stopped and much of the country is of the opinion that housing is over-valued. However, there is still a mentality that it can't go down.

And also a quick check on sites such as MoneySupermarket.com shows you can STILL get 95% LTV mortgages at sub-LIBOR levels across various maturities, even after you include the fees. I have NO idea how the banks make money writing those mortgages. I suspect dodgy accounting...

1:30 AM  
Blogger jmf said...

Moin Traderboy,

thanks for the UK Update.

The BOE should have called their latest report not

"Financial Stability Report"

after reading it the name

"Financial Instability Report"

would be more appropriate.... :-)

1:40 AM  
Blogger jmf said...

Housing Market Teeters on Edge of Northern Rock in Capital Bust

Nick Collins, an independent London real estate broker who's had record profits every year since 2003, took a hit in September -- and that may be bad news for a U.K. economy built on a housing bubble. Five of his 50 buyers pulled out of purchases, spooked by a run on mortgage lender Northern Rock Plc that left it 2 billion pounds ($4.1 billion) poorer.

Gabay says so-called buy-to-let properties, which investors acquire for rental income, are more vulnerable to a fall in prices. The value of new buy-to-let mortgages soared more than 12-fold from 1999 to 2006 to 38.4 billion pounds, or 11 percent of new property loans, according to the Council of Mortgage Lenders.

1:44 AM  
Blogger jmf said...


2:10 AM  
Blogger jmf said...

Euro area Oct inflation estimated at 2.6%: Eurostat

Time for some tough talk from the ECB....

Good to know that they are vigilant... LOL!

3:04 AM  
Blogger jmf said...


Five Things You Need to Know: The Smoke Bomb Puppet Show; What Is the FHLB System?; PMI Defaults Rise 22%; MasterCard: The Good News; MasterCard: The Bad News

11:07 PM  
Blogger Edgar said...

Good stuff jmf, really good. We are Russia now, no difference. No free markets, no free elections, no free press. The illusion of freedom, that is all.

9:03 PM  
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5:52 AM  
Blogger Lindsey27 said...

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4:15 AM  

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