The Federal Housing Finance Agency (FHFA) is proposing to reorganize existing investment regulations that apply to the Federal Home Loan Banks (FHLB), as well as incorporate limitations on the Banks’ investment in mortgage-backed securities and asset-backed securities, contained in the existing Financial Management Policy.  The proposed rule would:

  • Consolidate all authority for investments and other transactions combining two existing sections that provide a list of authorized investments and authorization for derivative and other transactions;
  • Carry over the existing list of prohibited investments;
  • Incorporate new restrictions related to investment in mortgage-backed securities and asset-backed securities, including the prohibition on investment in residual interest and interest accrual classes of securities;
  • Readopt existing limitations on use of derivative instruments to create exposures or investments similar to residual interest;
  • If the proposed rule is adopted, FHFA expects to terminate the Financial Management Policy.

FHFA invites comments on all aspects of the proposed rule, and will adopt a final regulation with appropriate changes after taking all comments into consideration.  Comments on the proposed rule must be received on or before July 6, 2010.

Read More…