Seattle Federal Home Loan Bank to Detail Capital Plan

The Federal Home Loan Bank of Seattle, in an effort to resolve an ongoing issue with its capital strength, agreed to provide its regulator with a detailed plan to raise capital. The bank, which in March reported a $161.6m net loss in 2009, was rocked last year with $311.2m of credit-related charges associated with expected losses on private-label mortgage-backed securities (MBS) investments. “As we have previously stated, increasing mortgage delinquencies and foreclosures, particularly over the past two years, have adversely impacted the mortgages underlying the Seattle Bank’s private-label MBS,” the bank said in a press statement. “The credit-related charges on these securities are based on the securities’ expected performance over their projected lives, which may span 20 years or more.” In the wake of these MBS-related losses, the bank’s regulator stepped in late last year. The Federal Housing Finance Agency (FHFA) in November classified the bank as “undercapitalized.” As a result of the classification, the bank is unable to repurchase and redeem member stock. In response, the bank submitted a capital restoration plan to resolve the undercapitalized status. The FHFA on Monday requested additional information on its capital restoration plan. In a press release, the regulator said the bank agreed to supplement its original plan. “Although the Bank currently satisfies all existing capital requirements, FHFA determined that the Bank needed to supplement its earlier submissions with a more specific business plan with steps the Bank will take to resume timely repurchases and redemptions of member capital stock and to focus its business on advances supporting housing finance and community development,” the regulator said in an e-mailed statement. The FHFA gave the bank 120 days to submit the requested information. Write to Diana Golobay. Disclosure: the author holds no relevant investments.

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