Debt issuance for Fannie Mae, Freddie Mac and the Federal Home Loan Banks all recorded increases in new debt issuance during the third quarter of 2011.The three GSEs collectively issued $797.7 billion in new debt issue during the third quarter, a 9.8 percent increase from the previous quarter, while GSE debt outstanding at $2.152 trillion declined 4.8 percent from the second quarter.

The Federal Housing Finance Agency earlier this month issued a proposed rule to require the Federal Home Loan Banks to “monitor and assess the eligibility” of each Bank member for access to long-term advances through compliance with the Community Reinvestment Act and the member’s first-time homebuyer standards.To maintain access to FHLBank long-term credit and community investment products, Bank members are required to submit a community support statement to the FHFA every two years to document their CRA performance and record of lending to first-time homebuyers.

A reduction to the Federal Home Loan Bank system’s advance business and investment portfolio would diminish Bank profitability, resulting in a credit negative for U.S. commercial banks, according to a recent report by Moody’s Investors Service. “Limiting access to FHLBank funding would reduce alternative liquidity for U.S. banks,” noted the Moody’s report “A Diminished Federal Home Loan Bank System Would Weaken U.S. Banks.”

The Federal Home Loan Bank Office of Finance announced that preliminary combined net income for the FHLBanks rose 86.9 percent to $469 million for the three-month period that ended Sept. 30, 2011. That was down from $732 million at the end of the third quarter 2010.For the first nine months of the year, the FHLBanks earned $1.08 billion, $305 million less than the Banks earned during the same time last year. The Office of Finance attributed the changes to lower net interest income, partially offset by other non-interest losses and lower assessments.

The Federal Home Loan Bank system-wide minimum collateral-to-advances coverage ratio was 129 percent at year-end 2010, a 20 percentage point decrease from year-end 2009.The FHFA’s annual Report on Federal Home Loan Collateral Securing Advances – prepared for the Senate Committee on Banking, Housing and Urban Development and the House Financial Services Committee – analyzes, among other things, the ratios of subprime and nontraditional collateral to the total collateral.

A bill that would create a legislative framework for a covered bond market in the U.S., as well as a potential competitor for the Federal Home Loan Bank system, was introduced this week in the Senate, a counterpart to a long-standing covered bond bill awaiting final approval in the House.The United States Covered Bond Act, S. 1835, sponsored by Sens. Kay Hagan, D-NC, and Bob Corker, R-TN, is nearly identical to a House bill of the same name sponsored by Rep. Scott Garrett, R-NJ, and Carolyn Maloney, D-NY, H.R. 940.

It will be months rather than weeks before the Federal Housing Finance Agency and other government departments are ready to deploy a plan for bulk sales of the inventory of government-owned foreclosed properties, according to the head of the FHFA.Testifying before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises last week, FHFA Acting Director Edward DeMarco told members that with the long-awaited revision of the Home Affordable Refinance Program out of the way, focusing on the government’s ample real estate owned inventory is the “next priority.”

A bill introduced in the Senate this week would “responsibly unwind” Fannie Mae and Freddie Mac and “end the dependence on the government for housing finance.” Sen. Bob Corker, R-TN, said he introduced the Residential Mortgage Market Privatization and Standardization Act to start a conversation on how to best to rebuild the mortgage finance market.

Legislative and executive branch policymakers should carefully consider curbing investment portfolios of the Federal Home Loan Banks, say former Bank officials, while a current top Bank official says any such changes in the FHLBanks’ investment authority could undermine the system’s ability to carry out its mission.Since 1990, when Congress broadened the FHLBanks’ previously restricted membership, the pressures for dividends, price competition for advances and increases in required capital levels have significantly increased the “investment” portion of the Banks’ balance sheets, according to former Federal Housing Finance Board Chairman Bruce Morrison.