Bad mortgages cause Q2 losses for Federal Home Loan Banks

August 06, 2010 04:00PM

Souring mortgage bonds that aren’t backed by the government continued to cause losses for some of the Federal Home Loan Banks during the second quarter, the Wall Street Journal reported. The 12 Federal Home Loan Banks reported $326 million in combined net income for the second quarter, down 71 percent from a year earlier. The $797 million decrease in net income from a year ago resulted from larger provisions for credit losses and net losses on derivatives and hedging activities. Several home-loan banks have been weakened by bad bets on private-label securities that they scooped up during the housing boom in a bid to boost profits. Now, those banks have had to take repeated write-downs on the value of those securities as foreclosures mount, forcing them to reduce or eliminate the dividends paid to their members. The 12 home-loan banks lend to more than 8,000 banks, thrifts and credit unions at below-market rates to finance mortgage holdings. The banks have around $850 billion in debt outstanding, making them one of the world’s biggest borrowers. [WSJ]