Fitch Ratings said it has affirmed the ‘AAA’ long-term issuer default rating and support floors of the Federal Home Loan Bank of Atlanta.Fitch noted that as a GSE, the Atlanta Bank’s IDRs are linked to the U.S. sovereign rating. “FHLBank Atlanta has historically benefited from its affiliation with the U.S. government and its current IDRs and outlook benefit from the implicit support that it receives,” said the rating agency. “Fitch believes that implicit sovereign support for the FHLBank system would be forthcoming due to its important mission as it pertains to homeownership, serving as a source of liquidity to its members and the wide global distribution of FHLBanks debt.”

Some three years after it was first declared to be on fiscal thin ice, the Federal Home Loan Bank of Seattle took a big step toward firmer financial ground earlier this month. The Federal Housing Finance Agency, which regulates the 12 FHLBanks, reclassified the Seattle Bank as “adequately capitalized,” allowing it to move forward with plans to repurchase excess capital stock for the first time since December 2008. “Even though this initial repurchase amount is relatively small, it is a significant milestone in our return to normal operations,” explained FHLBank of Seattle President and CEO Michael Wilson in a letter to members.

The GSEs continued to reduce their footprint in global debt markets during the second quarter of 2012, with new issuance and debt outstanding down from the previous quarter and from the same period a year ago. Fannie Mae, Freddie Mac and the Federal Home Loan Banks issued a combined total of $622.3 billion in new debt during the second quarter, a 12.1 percent decrease from the first quarter and a 14.3 percent decline from the second quarter of 2011. GSE debt outstanding at $1.942 billion fell 14.7 percent from the first quarter and was down 10.4 percent from the same period a year ago.

Fannie Mae and Freddie Mac mortgage-backed securities remained the preferred investment choice of the 12 Federal Home Loan Banks during the second quarter of 2012, with a modest increase from the previous quarter, according to a new analysis and ranking by Inside The GSEs based on data from the Federal Housing Finance Agency. Meanwhile, Ginnie Mae securities posted an ever-so-slight decline within the FHLBank system during the period ending June 30, 2012. GSE MBS accounted for 72.0 percent of combined FHLBank MBS portfolios, up 2.7 percent from the first quarter. The Finance Agency’s data do not separately break out Fannie and Freddie volume or share.

The Federal Housing Finance Agency this week joined a growing chorus raising warnings about proposals to use the eminent domain powers of local government to seize performing underwater mortgages out of non-agency MBS pools. In an unusual move, the agency said it has “significant concerns about the use of eminent domain to revise existing financial contracts and the alteration” of Fannie Mae, Freddie Mac and Federal Home Loan Bank securities holdings. The FHFA formally invited public comment on the concept and warned that “action may be necessary on its part [as conservator and regulator of the government-sponsored enterprises] to avoid a risk to safe and sound operations and to avoid taxpayer expense.” The issue drew attention this week because both Fannie and Freddie managed...[Includes one data chart]

The Federal Housing Finance Agency captured the industry’s attention this week by formally citing “significant concerns” about proposals to use local government eminent domain powers, a paradigm shift the agency sees as potentially costly to Fannie Mae, Freddie Mac and the Federal Home Loan Banks. In a request for public comment, published in the Aug. 8 Federal Register, the Finance Agency warned that “action might be necessary” on its part “to avoid a risk to safe and sound operations” at the GSEs and to avoid taxpayer expense.

The Federal Home Loan Bank Office of Finance announced last week that preliminary combined net income for the FHLBanks dropped 24.7 percent to $552 million in the second quarter of 2012, down from the $733 million in the first quarter but more in line with the $515 million earned in the fourth quarter 2011. The FHLBanks net income for the six months ended June 30, 2012, was $1.285 billion, an increase of $676 million or 111.0 percent compared to the same period in 2011, said the Office of Finance.“The FHLBank system continues to fulfill its mission to make available favorably priced wholesale funding to members while supporting the FHLBank system’s commitment to affordable housing,” said the OF. “In addition, the FHLBanks continue to strengthen the FHLBank system’s capital base through increased retained earnings.”

Standard and Poor’s Rating Services has corrected its long-term issuer credit rating on the Federal Home Loan Bank of Seattle by lowering it from ‘AA+’ to ‘AA,’ S&P announced last week. “The rating reflects FHLB Seattle’s unchanged stand-alone credit profile of ‘A+’, plus two notches of uplift to reflect expected extraordinary government support if needed, according to our government-related entity criteria,” said the rating agency. “The S&P outlook on the bank remains negative and this correction did not affect the Seattle bank’s short-term ‘A-1+’ rating or the ratings on the consolidated obligations of the Federal Home Loan Bank System.”

There appear to be no immediate plans to move the GSEs beyond conservatorship status but news this week that the Federal Housing Finance Agency is actively investigating the possibilities of receivership may be designed to attract the attention of thus far indifferent policymakers and snap official Washington into action, say industry experts. The FHFA this week confirmed that it has commissioned the consulting firm PricewaterhouseCoopers to create contingency plans for taking Fannie Mae, Freddie Mac and the Federal Home Loan Banks into receivership. A Finance Agency spokesman said the hiring of PwC, which was not officially announced, is just one of a number of “ordinary regulatory activities” that the FHFA is authorized and obligated to pursue under the authority granted the agency by the Housing and Economic Recovery Act of 2008.

The Federal Home Loan Bank system is one of three potential hosts for a proposed new refinance program unveiled this week by a Senate Democrat aimed at rescuing underwater homeowners without direct federal assistance. Oregon Sen. Jeff Merkley’s proposal – spelled out in a white paper titled “The 4% Mortgage: Rebuilding American Homeownership” – would create a temporary government-backed trust to purchase eligible mortgages issued by private lenders. The RAH Trust would be funded by the federal government’s sale of bonds to investors. The plan would allow underwater borrowers who are current on their mortgages to refinance at a lower interest rate.