Despite Hedge Problems, Pittsburgh FHLBank Sticks with MPF.(Federal Home Loan Bank , Mortgage Partner-ship Finance)

WASHINGTON -- The Federal Home Loan Bank of Pittsburgh is sticking with its Mortgage Partner-ship Finance program although it plans to limit its purchases of single-family mortgages and keep its MPF portfolio at 10% of total assets.

In filing its first annual report with the Securities and Exchange Commission, the Pittsburgh FHLBank said it will continue to purchase mortgage loans from community bankers and midsize members, but it will no longer purchase mortgages on a flow basis from large producers. "This approach has proven to be unworkable since the bank could not fully anticipate and hedge deliveries of material volumes of loans from such large producers," according to the 2005 annual report.

The Pittsburgh bank ran into heavy prepayments and hedging problems in 2003 that sharply reduced earnings. At the time, the Pittsburgh FHLBank had the second-largest MPF portfolio. The 2005 annual report includes restated earnings, which shows the FHLBank incurred a $27 million loss in 2002 and a $68.7 million profit in 2003.

Since then, its performance has definitely improved. The Pittsburgh bank reported a 61% jump in earnings in 2005 and a 22% increase in advances. Earnings at the FHLBank jumped from $118.9 million in 2004 to $191.8 million in 2005 while advances rose 22% to $47.5 billion.

Today, the Pittsburgh bank does not want MPF loans to make up more than 10% to 12% of its balance sheet, according to Craig Howie, the FHLBank's marketing and sales director. The FHLBank had $72.9 billion in total assets as of Dec. 31.

The Pittsburgh bank also disclosed that its ...