To date, the 12 Federal Home Loan Banks have recognized more than $4.4 billion of losses on their investments in private-label mortgage-backed securities, according to the Federal Housing Finance Agency.

The GSE regulator released the information in response to an audit by the FHFA Office of Inspector General that is critical of the agency's supervisory approach in dealing with four of the 12 FHLBs that incurred the largest losses.

Most of the private-label MBS losses are concentrated in the Boston, Chicago, Pittsburgh and Seattle FHLBs.  The four incurred nearly $2 billion in "other-than-temporary impairment" credit losses in 2009 and 2010 alone.

The GSE regulator noted that the credit losses are based on financial models and estimates of future home prices and default rates.

While the FHLBs may face additional charges, "it is also possible that the losses realized will be less than the charges [$4.4 billion] already taken against income," FHFA noted in a November response to the OIG audit report, which became public Tuesday afternoon. 

As of Sept. 30, the 12 FHLBs held $30.1 billion of private-label MBS.  The 12 banks reported total operating income of $2.1 billion in 2010 and $1.1 billion during the first three quarters of 2011.

The OIG auditors were critical of the GSE regulator for not having written enforcement powers for dealing with troubled FHLBs and for failing to set meaningful deadlines for taking corrective actions. "FHFA's lack of a consistent and transparent written enforcement policy" undermines its oversight of troubled FHLBs, the OIG says in its report.

FHFA's response to the OIG audit stresses that the four FHLBs were placed under supervisory scrutiny in 2008 and 2009 and their financial strength improved in 2010 and 2011. However, the GSE regulator agreed to develop written enforcement policies by June 30.

FHFA officials also agreed to develop and implement an automated information system for cataloging examinations findings, planned corrective actions, time frames and status by the end of this year.

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