The Federal Home Loan Bank of Boston (FHLB of Boston) this week filed a complaint seeking to rescind the purchase of nearly $6 billion of MBS whose collateral is underpinned by loans to homeowners with sketchy credit.

The GSE’s investments have triggered major losses inside an institution that is a key source of funds for mortgage lending throughout New England.

Each year, the FHLB of Boston advances billions of dollars to member banks and credit unions to fund residential mortgage loans. But its investment portfolio took a major hit during the credit crisis when the value of its mortgage-backed securities plummeted.

In a presentation to shareholders, the bank said it filed a complaint against dealers related to investments in residential mortgage-backed securities. It is seeking to rescind purchase of 115 securities that the bank originally paid about $5.8 billion for. More details about the complaint were not immediately available at press time.

Heavy losses and write-downs in the MBS portfolio forced the FHLB of Boston to suspend its dividend to member banks. The bank also changed leadership amid a crisis of confidence in the institution’s direction.

At the end of 2007, FHLB of Boston had a portfolio of private label MBS with a par value of $6 billion. The par value at the end of March was $2.9 billion.

The FHLB, which had $55.6 billion in assets at the end of March, declared a modest dividend for members and said year-over-year net income rose $200,000 to $23.1 million.

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