Mortgage Partnership Finance program tops $1 billion in loans

Northwestern Financial Review, Feb 20, 1999

The Mortgage Partnership Finance program of the Federal Home Loan Banks has funded more than $1 billion of residential mortgage loans. The program, which provides an option for mortgage lenders who sell fixed-rate mortgages into the secondary market, also has commitments for an additional $800 million of loans.

The program is available to thrift and bank members of the Chicago and Dallas FHLBs. In the Chicago district of Illinois and Wisconsin, 44 thrifts and banks are participating and more than 100 are ready to join.

Participating institutions include community lenders in rural and suburban areas, as well as institutions in major cities. The median size of MPF loans is $94,400. About 53 percent of the loans were made to low- and moderate-income borrowers. Fixed-rate, residential mortgage loans for single family homes also are eligible.

Under the arrangement, the risks in long-term, fixed-rate lending are allocated between the FHLB and the lending institution. Aspects of the customer relationship are handled by the banks and thrifts that create and service the loans.

Lenders manage the credit risks in a second loss position, for which they receive credit enhancement fees from the FHLB. The FHLB manages the funding, interest rate, liquidity and prepayment risk. The structure allows lenders to retain customer relationships without taking the interest rate risk of the loans or paying guarantee fees to a secondary mortgage agency.