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Mortgage Partnership Finance Program Makes a Comeback

NOV 28, 2012 10:46am ET

The Federal Home Loan Bank of Chicago that launched the Mortgage Partnership Finance initiative 15 years ago has been recruiting other FHLBs to sign up for the secondary market program.

Currently, six of the 12 FHLBs participate in MPF, purchasing fixed-rate mortgages from their member banks, thrifts and credit unions.

The director of MPF in Chicago, Eric Schambow, told National Mortgage News that there are ongoing discussions with other FHLBs about joining the program.

“We look forward for some of those FHLBs actually launching the MPF product line in their districts as early as the first quarter of next year,” Schambow said.

MPF has been a sleepy program for many years—with the FHLBs struggling with bad investments in private-label securities and their regulator taking a dim view of the secondary market program.

But that’s changing now. The refinancing boom has revived MPF with loan volume doubling since 2011. During the first three quarters of this year, 1,324 FHLB member banks, thrifts and credit unions originated $10 billion in MPF loans, including $4.5 billion of MPF “Xtra” product.

Currently, six FHLBs (Chicago, Boston, Des Moines, New York Pittsburgh and Topeka) offer their members access to the MPF program. Five offer MPF Xtra, which allows members to originate single-family loans that are sold to Fannie Mae. (The New York FHLB does not offer the Xtra product.)

During the first three quarters of this year, Topeka members originated $2 billon of traditional MPF loans, compared to $1.1 billion during the same period in 2011. Approximately 70% to 75% of the loans purchased were refinancings. (With traditional MPF the originator retains a portion of the credit risk for many years.)

In the third quarter, the Topeka FHLB rolled out the MPF Xtra product for the first time, according to Dan Hess, senior vice president for member programs at the Topeka bank. “Our goal is to offer as many tools to our members to help them be successful,” Hess said. The Xtra product gives them two different investor options—the FHLB and Fannie Mae.

“At times the execution can be better on one or the other product. So it is pretty competitive,” Hess told NMN.

The Topeka FHLB senior vice president also noted that members have the option to retain or sell the servicing when they sell MPF or Xtra loans. (Many correspondents require loan sellers to sell the servicing, too.)

“We have a lot of members signing up for traditional MPF product and we getting quite a few applications for the Xtra product,” Hess said. The Chicago FHLB manages the MPF program and acts as the master servicer for all Xtra loans.

“The program is growing and it is being recognized across the FHLB system as a program that provides a lot of value,” Schambow said.

He also stressed that the FHLBs have long standing relationships with their members as a source of liquidity. Meanwhile, some mortgage investors have exited the market during the past year or cut back on their correspondent business.

In these times of investor uncertainty, “who better to partner with than a Federal Home Loan Bank,” Schambow said.