WASHINGTON -- Low-cost lending to financial institutions by the Federal Home Loan Bank system jumped 16.6 percent in August, the system's finance arm said Tuesday.
As the upheaval in the mortgage market worsened last month and the Federal Reserve injected billions of dollars of temporary reserves into the banking system, the 12 regional banks that make up the Federal Home Loan Bank system made $769 billion available to banks and thrifts that make mortgage loans.
It had been known that the FHLB member banks and thrifts had significantly increased their requests for loans, known as advances, from the home loan bank system. But Tuesday's announcement by the system's Office of Finance provided the first specific amount.
The monthly advances normally aren't made public; they are released only on a quarterly basis. But the finance office said it was issuing the information Tuesday, showing a $110 billion increase in advances in August from the July 31 level, "in light of the recent extraordinary events affecting credit markets ..."
The loans are backed by the mortgages held by the member banks and savings institutions.
The increase in loans was reflected in a $110 billion rise in the debt issued by the home loan bank system in August, to $1.09 trillion. Officials said that was the largest monthly increase ever in the amount of debt securities backed by mortgages that are issued by the system and sold on Wall Street. Those figures are released monthly. The August debt level compares with $963 billion in August 2006.
Robert Davis, executive vice president of the industry group America's Community Bankers, called the announcement of the increased advances in August "welcome news for the housing market."
"It is a powerful sign that members of the (Federal Home Loan) banks are stepping up their capacity to make prudent home loans available to qualified borrowers -- both new and existing -- providing stable, long-term financing in an uncertain marketplace," Davis said in a statement.
Created by Congress during the Depression, the self-funded home loan bank system has some 8,100 members around the country: banks, savings and loans, and credit unions. Eight of every 10 U.S. financial institution belongs to the home loan bank system, which is a big player in the $10 trillion home-mortgage market.
Because members are government-insured deposit takers, they are subject to federal regulation and underwriting guidelines and have made far fewer of the subprime mortgages -- targeted at borrowers with weak credit -- that triggered panic as defaults and foreclosures in that sector surged, experts say.
However, the credit problems spread last month to the broader mortgage market, making investors nervous about nearly all types of home loans.