Home Loan banks may need gov’t bailout

The increasingly crucial Federal Home Loan Banks are being drained of their capital foundations and could be forced to seek direct government aid, analysts say.

The 12 home loan banks — collectives chartered by the U.S. government and owned by member financial firms — are being turned to more and more by private banks for hundreds of billions of dollars in low-cost funding to support lending to home buyers. But investments in now-worthless mortgage-backed derivative securities are forcing the Federal Home Loan Banks to reduce their lending or to raise additional capital, The Washington Post reported Saturday.

The banks for the first time may need to borrow directly from the federal taxpayers even as their volume of outstanding loans have increased by 58 percent since the beginning of 2007 to more than $1 trillion at the end of September, the newspaper said.

The Post reported that several of the home loan banks have suspended much-needed dividend payments to their smaller bank customers, while collective in Seattle said this week that the declining value of its investments has probably dropped its capital below a level required at the end of the year.