Despite a change in accounting rules intended to weaken the punch of other-than-temporary impairment charges, five Federal Home Loan banks said they lost a combined $146 million during the first quarter.

So-called OTTI charges totaled $4.9 billion during the quarter, but guidance from the Financial Accounting Standards Board (FASB) in March allowed the Home Loan banks to charge just $480 million of that sum against their income. The remaining $4.4 billion counts against other comprehensive income.

"Overall, I think the system is performing well," said John von Seggern, the president of the Council of Federal Home Loan Banks. "OTTI is a problem, but the FASB changes allow the banks to take charges on just the economic losses, which we think is the right way to go."

Still, the numbers demonstrate the myriad problems facing the Home Loan banks. The $4.9 billion aggregate OTTI quarterly charge is far larger than the $2 billion the system recorded for all of 2008.

Most of the Home Loan banks that found themselves in the red — Atlanta, Boston, Chicago and Seattle — were weighed down, at least in part, by their mortgage holdings. The Des Moines Home Loan bank said its $6 million loss stemmed from early payment of almost $231.8 million in par value bonds.

Meanwhile, the Home Loan banks of Topeka, Kansas, and Pittsburgh still have not filed the first-quarter reports that were due to the Securities and Exchange Commission on May 15. Both Home Loan banks have said they are busy sorting out their analysis of potential OTTI charges.

But the FASB changes give the Home Loan banks much-needed breathing room to build capital and find a way out of the OTTI mess. For instance, the Home Loan Bank of Seattle said it held $198.3 million in retained earnings at March 31 after exhausting that cushion at yearend.

Since the OTTI problems emerged last year, as the value of private-label, MBS fell, each Home Loan bank has independently determined how much of a charge it would take. Now the Federal Housing Finance Agency, which regulates the Home Loan banks, has issued guidance that should encourage more consistency systemwide.

When considering their private-label mortgage-backed securities, the Home Loan banks are now required to use a model developed by the Home Loan Bank of San Francisco to predict cash flows and ultimately decide whether an OTTI charge is required. Similarly, Home Loan banks with subprime MBS are to make use of models developed by the Home Loan Bank of Chicago to determine their OTTI charges.

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