The Chicago Federal Home Loan Bank seems to be continually looking for ways to expand its mortgage conduit program so member banks, thrifts and credit unions will have broader access to the secondary market.
Through its Mortgage Partnership Finance program, the Chicago FHLB currently aggregates conforming conventional loans for sale to Fannie Mae.
Now the Chicago FHLB is venturing into new territory by becoming a Ginnie Mae issuer. And it will open the door for the other seven FHLBs that participate in the MPF program to achieve Ginnie Mae execution for their members.
This new option will allow participating FHLB members to be more competitive in their communities and provide better pricing on Federal Housing Administration, Department of Veterans Affairs and Rural Housing guaranteed loans, according to Chicago FHLB president Matt Feldman.
“We are committed to supporting the mortgage activities of community lenders across the country that are members of the Federal Home Loan Banks,” Feldman said.
Feldman had a willing partner in Ginnie Mae president Ted Tozer in creating the new program. Tozer has been urging small lenders to create co-ops so they could gain access to the Ginnie Mae program.
“This effort is an important move toward satisfying a critical strategic initiative of Ginnie Mae to find a way to expand access to our program to small lenders,” Tozer said.
The Chicago bank plans to roll out the new MPF Government Mortgage-Backed Securities program to the members of its district, which covers Illinois and Wisconsin, later this year.
The rollout for the other FHLBs may start in early to mid-2014.
Under the new MPF program, Ginnie Mae will have just one counterparty and the Chicago FHLB will be the actual MBS issuer. The Chicago bank will do multi-issuer securities as the other FHLBs join the Ginnie Mae program.
Participating banks and thrifts will send monthly servicing reports to a Wells Fargo trust company, which will serve as the master servicer. The trust company will compile the servicing reports for Ginnie Mae.
This structure also allows participating banks, thrifts and CUs to retain the servicing or sell it. Normally, a Ginnie Mae issuer must service the loans. But Tozer told NMN they found a way to get around the servicing requirement in this case.
It is not uncommon for FHLBs to purchase FHA and VA loans from their members and hold them in portfolio. But the new program promises better pricing.
Speaking at a National Association of Federal Credit Unions conference last week, Tozer said World Bank officials have indicated they would pay a premium for FHLB Ginnie Mae MBS. The officials cited credit quality and slower prepayment speeds as the reason for paying up.
Meanwhile, Feldman is continuing to look for new investors to provide FHLB members with greater access to the secondary market.
That might involve developing relations with other entities that securitize mortgages or large investors that portfolio product.
An ideal investor would be a life insurance company, he said, that is also a FHLB member. The FHLB president stressed that he doesn’t want to sell product to organizations that are direct “competitors with our members.”
