Revamp for US mortgage banks

Several US federal home loan banks are improving their risk management systems in response to regulatory and rating agency pressure. The group of 12 banks that fund residential mortgages and community development loans are examining derivatives accounting before they, along with the US government mortgage giants Freddie Mac and Fannie Mae, register with the US Securities and Exchange Commission (SEC) later this year. The banks are registering in response to calls for greater transparency.

When the banks register they must comply with the SEC Act of 1934, which requires disclosure of financial statements and information related to transactions. They will also be subject to the Sarbanes-Oxley Act, which demands enhanced accounting disclosure for derivatives.

Some of the mortgage banks have already been downgraded because of risk management concerns. Last December, Standard & Poor’s (S&P) lowered its long-term credit rating on the Federal Home Loan Bank of Seattle to AA+ from AAA