Federal Home Loan Bank IndyMac exposure seen covered

NEW YORK (Reuters) - IndyMac Bancorp Inc IMB.N appears to pose little threat to the Federal Home Loan Bank system, which has advanced the ailing mortgage company billions of dollars in low-cost loans, analysts said.

A logo on the IndyMac Bank corporate headquarters building is seen in Pasadena, California, July 8, 2008. REUTERS/Danny Moloshok

The loans, or “advances” -- totaling more than $10 billion as of March 31 by the San Francisco FHLB -- are backed by mortgages pledged by IndyMac. The Federal Deposit Insurance Corp, as receiver in a bankruptcy, would follow-through on such collateral agreements, an FDIC counsel said.

Rising concern over the soundness of IndyMac, which this week said it would stop most lending, led depositors to withdraw cash at an “elevated” pace on Tuesday. Withdrawals came after U.S. Sen. Charles Schumer sparked questions about a possible collapse of Pasadena, California-based IndyMac, once a top U.S. mortgage lender.

“Historically, I am not aware of any instance where the FDIC has not paid off the claim and the Home Loan banks have had to liquidate assets,” said Brian Harris, an analyst at Moody’s Investors Service in New York.

Schumer in November accused former top U.S. home lender Countrywide Financial Corp of threatening the soundness of the FHLB system by using deteriorating loans as collateral for excessive borrowings from Atlanta’s FHLB. IndyMac was a “junior version” of Countrywide, Schumer said on Tuesday.

Non-performing loans at IndyMac, which specialized in making “Alt-A” loans that have required less proof they can be repaid, increased six-fold in the year to March 31.

The FHLB system does not take credit risk and has never sustained a credit loss, said John von Seggern, president of the Council of Federal Home Loan Banks, a trade group.

The FHLB of San Francisco does not comment on individual members, a spokeswoman said.

The FHLB of San Francisco is one of 12 banks in a system created by Congress to help savings and loans and commercial banks raise money for residential lending. The FHLBs raise money for advances in the $3 trillion market for “federal agency” unsecured debt, which has been upset in recent weeks by speculation of losses and capital shortfalls at the two other major issuers, Fannie Mae and Freddie Mac.

Expected payment on the advances by the FDIC provides an additional layer of protection to FHLB debtholders, bolstering value of its bonds over those of Fannie Mae and Freddie Mac, Mustafa Chowdhury, head of U.S. rates research at Deutsche Bank in New York, said on a conference call on Wednesday.

Editing by Dan Grebler