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Schumer Wants Review of Countrywide’s FHLB Borrowing

New York Senator Charles Schumer sent a letter to the chairman of the Federal Housing Finance Board today in regard to recent heavy borrowing made by mortgage lender Countrywide Financial via the Federal Home Loan Bank in Atlanta.

In the letter addressed to Ronald Rosenfeld, Schumer said, “I am concerned that the loans being pledged by Countrywide to secure these advances (borrowings) may pose a risk to the safety and soundness of the FHLB system as a whole.”

Schumer also called for a review of both the Atlanta-based bank’s policies for evaluating collateral and of the loans pledged by Countrywide to secure its borrowings.

The top U.S. mortgage lender has relied on the Atlanta bank for funding after secondary market woes forced the lending giant to look elsewhere for short-term borrowing needs.

As of September 30th, Countrywide’s borrowings totaled $51.1 billion from the Federal Home Loan Bank in Atlanta, up 77 percent from the prior quarter.

Countrywide’s borrowings are secured by roughly $62.4 billion in mortgages, many of which Schumer argues are pay-option arms and other high-risk loans that could lose value, putting the FHLB system at risk.

But the Federal Home Loan Bank in Atlanta said its policies are “validated with very intensive modeling under various scenarios,” and does not accept delinquent mortgages as collateral.

Atlanta bank officials said each $1 in advances must be backed by greater-valued collateral, with mortgages and similar securities typically marked down by 10% to 50%, depending on risk.

The borrowing made by Countrywide has accounted for more than a quarter of the home loan bank’s total assets of $190.72 billion.

Officials of the Atlanta-based bank said there is no limit to how much of its lending can go to one institution, but noted that any member’s total advances are limited to 50% of that member’s assets.

So in Countrywide’s case, whose savings bank had assets of $106 billion as of the end of October, that funding could be nearing its limit, forcing the lender to raise funds via its savings bank which offer certificates of deposit and money-market accounts.

Shares of Countrywide were down 65 cents, or 6.74%, to $9.00 in afternoon trading on Wall Street.

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