A little-known network of government-sponsored bank co-operatives founded during the Great Depression is playing a critical role keeping the private sector US mortgage industry open for business – and some mortgage lenders out of financial trouble – in spite of the brutal slump in the housing sector.

The Federal Home Loan Banks are pumping hundreds of billions of dollars into the mortgage industry in the form of loans against mortgage collateral at a time when purely private sources of finance are offered only at punitive terms for many lenders.