Source of CFC funding

We'll we've finally figured out where Countrywide is getting it's operating funds from FHLB. Unlike Fannie Mae and Freddie Mac, FHLB is not publicly traded, so you can't short it. It's privately owned by the member banks like the Federal Reserve Bank.

Schumer: Loans to Countrywide need a look

Senator says troubled mortgage company is default risk for billions in loans from Federal Home Loan Bank.

November 26 2007: 7:22 PM EST

WASHINGTON (AP) -- Sen. Charles Schumer urged a federal regulator Monday to examine whether loans to troubled Countrywide put at risk a network of regional government-sponsored lenders.

Countrywide (Charts, Fortune 500), plagued by a surge of defaults among loans made to borrowers with weak credit, is the largest borrower from the Federal Home Loan Bank of Atlanta, with $51 billion, or 37 percent of the bank's total advances as of Sept. 30, according to a Securities and Exchange Commission filing.

The Federal Home Loan Bank system, created by Congress during the Depression, has some 8,100 members around the country including banks, savings and loans and credit unions.

As the upheaval in the mortgage market worsened this year, the 12 regional banks that make up the system have made billions available to banks and thrifts that make mortgage loans. Because members are government-insured deposit takers, they are subject to stricter federal regulation and underwriting guidelines.

However, the New York Democrat, a member of the Senate Banking Committee, said in a letter Monday to Ronald Rosenfeld, chairman of the Federal Housing Finance Board, that Countrywide's loans are likely to be at risk of default.

"At a time when Countrywide's mortgage portfolio is deteriorating drastically, FHLB's exposure to Countrywide poses an unreasonable risk," Schumer said in a prepared statement Monday, citing Countrywide's emphasis on so-called "payment-option" mortgages, a loan in which the borrower has the option to allow the principal balance to increase.

Schumer's letter was prompted by a story Monday in The Wall Street Journal that highlighted concerns about Countrywide's reliance on the Atlanta bank for funding.

A spokesman for the Atlanta bank declined to comment. The bank said in a September SEC filing that it "has minimal exposure to subprime loans." A spokesman for Rosenfeld couldn't be reached for comment.

Like mortgage finance giants Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500), the federal home loan banks are government-chartered enterprises, benefiting from the widespread assumption on Wall Street that the federal government would bail them out in the event of a crisis.

That implicit backing enables the home loan banks as a group - made up of 12 individual cooperatives - to borrow cheaply on global markets by issuing hundreds of billions of dollars in top-rated securities backed by mortgages.