Magazine article American Banker

ABA to Aid Small Banks in Selling Loans to FHLBs

Magazine article American Banker

ABA to Aid Small Banks in Selling Loans to FHLBs

Article excerpt

The Federal Home Loan banks' share of the secondary mortgage market is just a fraction of Fannie Mae's and Freddie Mac's, but a new alliance with the American Bankers Association could help narrow the gap.

The trade group is to help smaller banks sell mortgage loans to the Home Loan banks through their Mortgage Partnership Finance program. Nine of the 12 Home Loan banks have signed on.

Details of the alliance are still being worked out, but its aim is to increase competition in the secondary market and generate fee income for the participating banks.

"Our mission is to enhance the profitability of our members, and this program does just that. It gives banks an alternative that allows them to compete more effectively in the mortgage markets," said Donald G. Ogilvie, the ABA's president and chief executive officer, on Monday in a press release.

Joe Pigg, the group's senior counsel for housing and community development, said its Corporation for American Banking, a for-profit subsidiary, will help ABA and Home Loan bank members and be paid by the Home Loan banks.

The Mortgage Partnership Finance program, which the Federal Home Loan Bank of Chicago developed in 1997, enables Home Loan banks to buy loans from member institutions and manage the interest rate, funding, liquidity, and prepayment risks, just as Fannie and Freddie do.

But though Fannie and Freddie assume the credit risk for the loans they purchase, the nine Home Loan banks that participate in the MPF program leave that risk to the lenders, who therefore pay no guarantee fees and can make bigger profits. …

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