Schumer calls for probe of $50 billion in advances to Countrywide

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

A big hat tip to Keith at Housing Panic for this one. Sentator Schumer (who seems to be doing anything possible to attach his name indelibly to the mortgage problem) has called for a federal investigation in to the Federal Home Loan Bank in Atlanta regarding $50 billion in advances to Countrywide to fund mortgage loans originated by the troubled lender.

From The Street:

FHLB Atlanta has made $51.4 billion in advances to Countrywide Bank as of Sept. 30, Schumer wrote, citing the most recent Securities and Exchange Commission filings. The amount represents 37% of the bank’s total outstanding advances and the $62.4 billion in loans Countrywide has put up as collateral represents 78% of its total mortgage holdings, Schumber said.

“I find these numbers alarming as reports continue to emerge about how Countrywide’s reckless and predatory lending practices were a leading contributor to today’s foreclosure crisis,” Schumer wrote in calling for the probe.

Federal home loan banks provide stable, low-cost credit to lending institutions to help keep liquidity in the financial system. The banks accept mortgages as collateral for the loans. Schumer is worried that the shaky collateral being tendered by Countrywide is not worth the money being handed out left and right by the FHLB.

To me this is an under-appreciated point. We have mortgages still being written with questionable guidance that are being insured by the federal government either through one of the big GSEs or in the form of an unspoken guarantee of the FHLB system. While the FHLB is privately owned by the member institutions (banks, etc.) they have government oversight and since they were set up in the Great Depression they have the tacit backing of the government. How the government can go on granting cash to banks with questionable prospects as going concerns is beyond me.

It is almost a free ride for Countrywide – take as much money as you need, repay us when, and if, you can.