The talks could spur a consolidation among the 12
regional home-loan banks, cooperatives that lend money to commercial banks
and thrifts. The idea of merging some of them has been viewed as a way to
increase efficiency, but such undertakings might run into opposition from
politicians eager to preserve jobs in their districts.
Because they are government-sponsored cooperatives, the
home-loan banks don't have publicly traded stock, and their market value
is unclear.
In an interview, Mike Thomas, chief executive officer of the
Chicago bank, and Terry Smith, his Dallas counterpart, cited consolidation in
the financial-services industry, a rise in costs and opportunities for greater
efficiency.
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They said the talks were initiated by the two banks, not by
their regulator, the Federal Housing Finance Board, which would have to approve
any merger. Earnings at the Chicago bank have fallen in recent years, in part
due to shrinkage of a mortgage-investment program and to increased funding
costs.
A spokesman for the regulator declined to comment. Ronald
Rosenfeld, chairman of the finance board, has spoken favorably about the
possibility of consolidations. He couldn't be reached for comment.
Congress created the home-loan banks in 1932 to shore up thrift
institutions devastated by the Great Depression. Because they were set up by
Congress and are federally regulated, investors assume the government would feel
obliged to bail out the home-loan banks in a crisis. As a result, they can
borrow nearly as cheaply as the U.S. Treasury on international bond markets.
They use the proceeds to make low-cost loans, known as "advances," to
their 8,100 owners, who are known as members and include commercial banks,
thrifts, credit unions and insurance companies.
The advances are a vital source of funding for many local banks
that lack the scale to borrow on the international market. The availability of
this low-cost funding is one reason the U.S. has more than 8,600 banks and
thrifts, despite competition from national giants such as Bank
of America Corp. and Citigroup
Inc., said Bert Ely, a banking consultant in Alexandria, Va.
Supporters of the home-loan banks fear they may lose business
because some big institutions, including Washington
Mutual Inc., have begun raising funds through so-called covered bonds, a
type of mortgage-backed security popular in Europe. Covered bonds are considered
an alternative to advances from the home-loan banks.
Some of the home-loan banks were established in what seem like
unlikely places -- such as Indianapolis and Topeka, Kan. -- that aren't major
financial centers. Politicians in such areas would be likely to oppose
consolidation that would eliminate local jobs.
Write to James R. Hagerty at bob.hagerty@wsj.com
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“There’s so much inventory out there that the buyer can pick and choose,” said Susan Sirles Fidler, a Realtor at Re/Max 10, Oak Lawn. But she cautioned, “The stuff that’s almost free is almost free because it’s going to cost you an arm and a leg to put it back together. It’s not buyer beware as much as buyer be smart.”
