Sept. 7 (Bloomberg) -- The U.S. Treasury extended a secured credit facility to the Federal Home Loan Banks, the government- chartered cooperatives, allowing them to borrow through the end of next year.

Any loans would be backed by Fannie Mae or Freddie Mac mortgage securities or loans that the banks make to their owners, Treasury Secretary Henry Paulson said in a statement in Washington today. The Federal Home Loan Banks, or FHLBs, are owned by financial institutions that also borrow from the banks.

The Treasury, which made similar credit available to Fannie and Freddie as the U.S. today took over those companies, received the authority to provide the credit in a housing law enacted in July. Like Fannie and Freddie, the nation's 12 FHLBs have been paying record yields over U.S. government notes to sell bonds in the so-called agency debt market.

The FHLBs are ``very unlikely'' to need to use the program, Federal Housing Finance Agency Director James Lockhart, their regulator, said at a press conference today. The FHLBs have larger capital reserves than Fannie and Freddie and all but one of the regional lenders are profitable, he said.

``We are pleased that the U.S. Treasury is creating this backstop facility to ensure stability and market access,'' John Fisk, chief executive officer of the system's office of finance in Reston, Virginia, said today in an e-mailed statement.

Largest Borrower

The Federal Home Loan Bank system is the largest U.S. borrower after the federal government. The FHLBs, lend money to more than 8,000 thrifts, credit unions, insurers and commercial banks at below-market rates, mainly to finance their mortgage holdings. The banks also buy and hold mortgage-related assets.

Any loans to Fannie, Freddie or the FHLBS are likely to be for less than one month but no shorter than one week, the Treasury said. Loan amounts will be based on available collateral. The target interest rate for the loans is the equivalent of the London interbank offered rate of the same term, plus 0.50 percentage point, the statement said.

The FHLBs had about $1.34 trillion of assets on June 30, mostly eligible collateral for the lending program, and $1.25 trillion of debt, according to the finance office, which manages their collective debt sales.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: September 7, 2008 13:20 EDT