IndyMac Insurance Tab Could Hit $8B
Friday night, the Federal Home Loan Bank of San Francisco put out a statement saying the IndyMac advances were collateralized with approximately $21.6 billion in mortgages. That's a lot of collateral securing $10.1 billion in advances. The FHLB had prudently raised its haircuts on IndyMac's mortgage collateral and is quite unlikely to lose a dime. The most likely scenario is that the successor institution, IndyMac Federal Bank will continue paying interest on the advances for a while, and then start paying them off.
To dispel misinformation flying around last week among the mainstream media, as well as misinformed blogs, Federal Home Loan Bank advances are not a "bailout." They are a normal funding source for most U.S. banks and thrifts. Contrary to another piece of misinformation, there are no tax dollars on the line when the FHLB lends money to banks.
The Federal Home Loan Banks are a system of 12 regional wholesale banks that were chartered by Congress to help ensure liquidity sources for mortgage lenders. The FHLBs are cooperatively owned by their members -- banks, S&Ls, credit unions and some insurance companies -- who hold capital stock in the wholesale banks. The amount of capital stock held by members depends on their size and on their level of FHLB borrowings.
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