Someone to lean on (besides Fannie and Freddie)

Wall Street investors are demanding higher returns for mortgage-backed securities that aren't guaranteed by Fannie Mae and Freddie Mac. So lenders like Countrywide Financial Corp. are concentrating much of their loan production on "agency elligible" loans. Whether Fannie and Freddie can keep up with the demand -- they have had problems of their own lately -- remains to be seen.

But unlike some "private label" mortgage lenders, Countrywide also has a banking arm, Countrywide Bank, which it can tap to fund mortgage loans. As a member of the Federal Home Loan Bank of Atlanta, as of Sept. 30 Countrywide was relying on the cooperative for $51.1 billion in advances -- up from $28.2 billion at the end of 2006. That's 36.8 percent of the FHLB of Atlanta's total advances, against Countrywide Bank deposits of $557.6 million, FHLB Atlanta revealed in its latest quarterly report.    

FHLB Atlanta said it had acquired $1.3 billion in mortgage-backed securities from Countrywide through the end of September -- including $860.2 million in the last quarter alone -- compared to $478.6 million at the same time a year ago.

Although Countrywide's stock went into a free fall in August when one analyst raised the possibility that the lender might go bankrupt if forced to hold a fire sale of assets, FHLB Atlanta believes that it's holding "sufficient collateral" to secure the advances made to Countrywide and other institutions, and "does not expect to incur any credit losses on these advances."

In addition to its deposits, Countrywide has pledged $62.4 billion in mortgage loans to "secure its outstanding FHLB advances and enable future advances," according to the lender's most recent quarterly report. That's not much more than the $57.5 billion in mortgage loans Countrywide had pledged at the end of 2006 to secure about half that amount in advances.   

No worries at FHLB Atlanta, however, where third quarter profits totaled $133.1 million, up 20 percent from a year ago.

"In the midst of this summer's credit crisis, the Bank performed very well, responding rapidly and effectively to support the liquidity needs of our members," said FHLB Atlanta CEO Richard Dorfman in a Nov. 15 press release. "The importance and value of our mission was very clear as our member institutions sought a dependable source of funding in a turbulent market."

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