Countrywide Bank, already the subject of much speculation about its viability because of its active involvement in sub prime lending over the last several years, was targeted yesterday by a leading Democratic Senator who urged that the company's use of its access to the Federal Home Loan Bank's (FHLB) lending system be reviewed and possibly curtailed.

Senator Chuck Schumer (D-NY) sent a letter on Monday to Ronald A Rosenfeld, Chairman of the Federal Housing Finance Board, expressing his "serious concern over the lending practices of the Federal Home Loan Bank of Atlanta, specifically in regard to the significant volume of advances made to Countrywide Bank."

The Senator, who sits on the Senate Finance Committee and the Senate Committee on Banking, Housing, and Urban Affairs said that FHLB Atlanta had, according to the most recent filings with the Securities and Exchange Commission (SEC) made advances to Countrywide of 51.1 billion as of September 30 of this year. The company, widely regarded as the largest mortgage lender in the U.S., had pledged 62.4 billion of mortgages as collateral for the advances. These transactions represent 37 percent of the FHLB's total advances as of the end of the third quarter and 78 percent of Countrywide's total portfolio of mortgage loans.

FLHBs (there are several) were created by Congress during the early days of FDR's administration to shore up failing banks and provide money for housing. In recent months as the sub-prime crisis has deepened, they have increased their activity by providing secured advances to keep money flowing to mortgage lenders.

The Senator said that he found the FHLB lending numbers "alarming as reports continue to emerge about how Countrywide's reckless and predatory lending practices were a leading contributor to today's foreclosure crisis. Moreover, it is my understanding that Countrywide's loans held for investment at the bank have been far from immune from the credit deterioration that has resulted from unsound lending."

Schumer stated that Countrywide was reported to hold $27 billion of "pay option ARMs" as of the end of September, over one-third of all of the loans held for investment by the bank. Pay option ARMs are those in which borrowers can make a monthly decision as to whether that month's payment will be enough to pay principal and interest, interest only, or perhaps only a portion of the interest for the month. The Senator quoted a Wall Street Journal report that 91 percent of Countrywide's option ARMS issued last year was so-called "low doc" loans in which borrowers did not have to fully document income. He said that delinquencies in this part of Countrywide's portfolio are reported to be skyrocketing - jumping nearly 75 percent in the third quarter.

Schumer asked that the Federal Housing Finance Board conduct a review of the loans that the FHLB is holding as collateral for Countrywide's loans and that the Board seek an explanation as to how any junior or second mortgage liens could, in a time of declining property values, be considered as adequate collateral for FHLB advances.

According to the on-line edition of The Wall Street Journal neither Countrywide nor Chairman Rosenfeld was available for comment late Monday.