NY FHLB warns of higher housing-related loan costs
NEW YORK (Reuters) - The Federal Home Loan Bank of New York on Wednesday said the cost of its housing-related loans may rise after concerns over Fannie Mae and Freddie Mac raised its funding costs.
The bank -- a government-sponsored enterprise (GSE), like Fannie Mae and Freddie Mac -- in a regulatory filing also said its third-quarter earnings may slip in the current quarter as housing slows.
The bank said its cost of borrowing in the $3 trillion market for "federal agency" debt has been hurt by investor concerns over the two other main issuers, Fannie Mae (FNM.N) and Freddie Mac (FRE.N).
Investors have pummeled shares of the two U.S. mortgage funding giants since June amid concerns that mortgage losses would erode capital levels and hinder their ability to operate.
"This market unrest also affected the FHLBanks' issuance of consolidated obligations ... by significantly increasing the volatility in GSE debt pricing and resulting in sub-optimal funding at spreads inconsistent with historical levels," the FHLB of New York said in the filing.
"To the extent the FHLBanks receive sub-optimal funding, member institutions may, in turn, experience higher costs for advance borrowings."
The New York bank is one of 12 FHLBs that raise money in the agency market to make loans, or "advances" to members that hold their non-public stock. Borrowing costs in the agency bond market are lower than those of the corporate debt market since the issuers have strong government ties.
Funding for U.S. housing from the FHLB system, Fannie Mae and Freddie Mac has become more crucial in the past year as the credit crunch has clamped off other sources of money. A rise in mortgage costs would further hobble the fragile housing market thrown into crisis by soaring delinquencies and foreclosures.
The FHLB New York also said its main business of making loans, or "advances" to members was difficult to predict given the state of the economy and uncertainty in financial markets, whose stress has limited availability of credit.
Advances by the FHLB of New York to members grew by 10.6 percent to $90.8 billion as of June 30 from year-end 2007. Net income for the second quarter increased to $74.0 million from $70.6 million a year earlier, the FHLB said.
(Editing by Gary Crosse)
