Chicago, Dallas Federal Home Loan Banks Call Off Talks

Chicago–The Federal Home Loan Banks of Dallas and Chicago ended their merger talks, first announced in August,  due to questions about the Chicago bank’s mortgage securities holdings.The halt  in negotiations is another indication that financial institutions are still suffering from mortgage market troubles. Increased defaults and dropping home prices have cut market home loan values, The Wall Street Journal reported Tuesday.As funding has shrunk, the 12 regional U.S. home loan banks have increased commercial bank lending.The Chicago bank’s capital base, which was at 4.9 percent of assets at the close of last year, may not be enough for its losses. The Chicago home loan lender readily bought up home mortgages in the first half of the decade, unlike Dallas’ bank, prompting regulators to question its risk controls in 2004. The bank anticipates a first quarter loss and said losses will “continue for some period of time.”