Treasury: FHLBank Governance Needs Reform Too.(Federal Home Loan Bank)

The Bush administration still believes the Federal Home Loan Banks should be included in GSE reform legislation next year that would create a "world class" regulator for Fannie Mae and Freddie Mac.

The mortgage activities of FHLBanks have "converged" with the other two housing government-sponsored enterprises, Treasury undersecretary Brian Roseboro told a FHLBank forum in Washington last month.

"The Federal Home Loan Banks are no longer simply a wholesale financing outlet for their members, but have moved directly into the mortgage investment business, which encompasses the same type of risks as Fannie Mae and Freddie Mac face," he said.

The Treasury official declined to comment on an application by the Seattle FHLBank that would move that convergent one step further.

The Seattle bank is seeking regulatory approval to purchase highly rated mortgage-backed securities from member banks and thrifts with the option of selling the MBS to the capital markets. The application is pending before the Federal Housing Finance Board.

However, Mr. Roseboro indicated that Treasury looks favorably on institutions that want to increase competition in the secondary market and increase the breadth and depth of the market. "So as a general principle, these activities we think that increase competition are good," he told reporters.

Finance Board chairman Alicia Castaneda declined to make any comment about the Seattle MBS application, which has been pending before her agency since July 20.