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NW regional bank eyes turf of Fannie, Freddie

By The Associated Press

Norm Rice, Federal Home Loan Bank of Seattle CEO

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The bank said yesterday it has asked federal regulators for permission to begin buying mortgage-backed securities from the Northwest banks and thrifts that collectively own it, and then selling them to those financial institutions and other investors.

If approved, the plan would put the Seattle bank in competition with Fannie Mae and Freddie Mac, the huge government-sponsored companies that buy home loans from banks and other lenders and bundle them into securities for sale on Wall Street. Unlike them, however, the Seattle bank would not guarantee payments on the securities.

The plan, called MortgageChoice, would help home buyers by lowering interest rates through enhanced competition and would enable the Seattle bank to more effectively manage its financial risk, the bank said.

"The Federal Home Loan Banks are always looking for ways to provide more opportunities for consumers, who are working with member community banks, to afford a home of their own," Norm Rice, president and CEO of the Seattle bank, said in a statement.

"With MortgageChoice, the Seattle bank will be able to provide more choice and flexibility in the marketplace, which will help reduce the costs of mortgages for consumers," said Rice, who served as Seattle mayor in the 1990s.

The Federal Home Loan Bank of Seattle has $50 billion in assets and 370 financial-institution members in Alaska, Hawaii, Guam, Idaho, Montana, Oregon, Utah, Washington, Wyoming and American Samoa.

Carter Wood, a spokesman for the Federal Housing Finance Board, said yesterday the application made on July 20 was being reviewed.

Fannie Mae and Freddie Mac came under intense government scrutiny after a multibillion-dollar accounting scandal erupted at Freddie Mac in June 2003, resulting in the ouster of two chief executives and investigations by the Justice Department and the Securities and Exchange Commission.

Some of the Federal Home Loan Banks — in Atlanta, Chicago, New York and Pittsburgh — have had financial or accounting problems in recent months.

The Federal Home Loan Bank of New York, for example, last fall suspended payment of its October dividend to its 300 member banks because of financial troubles. The bank ran into difficulty because of $183 million in losses on soured investments in bonds backed by mobile-home loans.
 
Created in 1932 under efforts to shore up the U.S. banking system's ability to provide financing for home purchases, the Federal Home Loan Bank is a cooperative of U.S. banks that issues no publicly traded stock. Members of the cooperative own the system.

Information from Reuters is included in this report.