Thursday, November 18, 2004

Home-loan bank hurt by falling demand for mortgages

By Melissa Allison

Seattle Times business reporter

Like others in the mortgage business, the Federal Home Loan Bank of Seattle is suffering from a lack of demand.

While companies like Washington Mutual wish they could attract more business from homebuyers and owners, the home-loan bank is pining for more business from companies like WaMu.

Seattle's home-loan bank yesterday posted a 53 percent drop in third-quarter profit, to $16.8 million. Profit for the first nine months was $65.2 million, down 40 percent from a year ago.

Its return on equity, a common measure of profitability, plummeted to 2.7 percent in the third quarter, from 5.6 percent in the third quarter of 2003.

Going forward, the bank expects "tempered financial performance and increasing regulatory oversight," Norman Rice, chief executive of the bank and a former mayor of Seattle, wrote in a letter to its 370-plus members.

The home-loan bank is one of 12 nationwide that lend money to members such as WaMu, Bank of America and Wells Fargo, and buy mortgages from them. Because the home-loan banks are government-sponsored, they tend to receive better rates on debt from the capital markets than others do.

Unlike Freddie Mac and Fannie Mae, which also are sponsored by the government, the federal home-loan banks are owned by their members and do not trade publicly.

The Seattle home-loan bank also was hammered in the third quarter by prepayments on mortgages it bought at a premium, expecting long-term interest rates to go up more quickly than they have.

Following guidance from its regulator, the Federal Housing Finance Board, the bank expects to set aside a larger portion of its earnings, which likely will lower dividend rates to members by at least 50 basis points, or half of a percentage point, annually for the next three years.

The bank also plans to shrink its investment portfolio and focus more on "mission-related assets," such as wholesale loans to financial institutions and its mortgage-buying program.

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