Magazine article American Banker

Ill. Home Loan Bank to Fund, Hold Member Institutions' Mortgages

Magazine article American Banker

Ill. Home Loan Bank to Fund, Hold Member Institutions' Mortgages

Article excerpt

Under a pilot program approved Thursday, the Federal Home Loan Bank of Chicago will fund and hold mortgages originated by its member institutions.

The pilot program is supposed to make it cheaper for Chicago Home Loan Bank members to move mortgages off their books, by averting the guarantee fees they usually pay in secondary markets. These fees average 22 basis points, according to the Chicago bank.

"This offers Federal Home Loan Bank members a more profitable way of handling mortgages than the secondary market currently does," said Bruce Morrison, chairman of the Federal Housing Finance Board, the agency that oversees the Home Loan Bank System.

Under the Mortgage Finance Partnership Program, member banks and thrifts will originate and service one- to four-family home mortgages and hold reserves against credit losses. The Chicago Home Loan Bank, which has 671 member institutions in Illinois and Wisconsin, will manage the interest rate risk.

"Each participant in the transaction contributes what it does best," Chicago Home Loan Bank President Alex J. Pollock said. "The local financial institution has a natural competitive advantage in doing everything that touches the customer, while a Home Loan bank brings major expertise in national and international funding and hedging markets."

The pilot, initially limited to $750 million of loans, is expected to start by June, Mr. Pollock said.

Reaction was mixed among industry representatives.

"This has real potential to allow us to provide more funding for consumers in the Chicago district," said J. …

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