Hudson City Bancorp, one of the largest correspondent lenders in the Northeast, shed roughly $8.6 billion of MBS in the first quarter as it moved to reduce its interest risk at the demand of regulators.

The restructuring of its borrowing vehicles fed a $556 million first quarter loss. In the year ago period the thrift earned $149 million.

To reduce its rate risk Hudson City extinguished $12.5 billion of what it called "structured putable borrowings." The retirement of debt was funded by the sale of $8.6 billion of MBS.

In a statement company CEO Ron Hermance said the debt restructuring "mitigates our interest rate risk" and "positions us to eventually return to our core strategy of loan portfolio growth."

Hudson City also reported that its nonperforming loans increased by 1.8% in 1Q, the smallest increase in three years.

The lender ranks 19th nationwide in terms of home funders, according to the Quarterly Data Report.

In 1Q it funded $1.4 billion of residential loans and bought $147 million from correspondents, a 14% decline from the year ago.

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