The Chicago Federal Home Loan Bank and Redwood Trust Inc. have teamed up to create a conduit for jumbo mortgages.
The conduit, called MPF Direct, will be open to FHLB members that participate in the Mortgage Partnership Finance program, which is managed by the Chicago FHLB. Ten of the 12 regional FHLBs participate in the MPF program.
To launch the new jumbo program, the Chicago FHLB must get the approval of the Federal Housing Finance Agency, which regulates the Federal Home Loan Bank System. But Redwood Trust chief executive Marty Hughes expects to be buying MPF Direct jumbo loans during the second half of this year.
"MPF Direct is a great example of how the private sector can work with the FHLBank System to increase the availability of mortgage credit and increase the types of mortgage products that FHLBank members can offer to their customers," Hughes said.
Redwood is a real estate investment trust based in Mill Valley, Calif. The REIT is an issuer of private-label securities. In 2013, Redwood acquired $7 billion in prime jumbo loans and completed 12 securitizations totaling $5.6 billion. It started buying Fannie Mae and Freddie Mac loans last year.
MPF program executive vice president John Stocchetti noted that many FHLBank members don't offer high-balance, fixed-rate loans to their customers. If they do, many are forced to sell the loans to a competitor and risk losing their customer relationship to the aggregator or the large banks they sell to.
"MPF Direct was designed to offer superior execution to the members in a manner that allows them to retain the customer relationship and their deposits," Stocchetti said.
FHLB member banks, thrifts and credit unions will be able to deliver loans to Redwood Trust via MPF's operational platform. A Redwood subsidiary, RWT Financial LLC, has been approved for membership in the Chicago FHLB.
"Through this membership, Redwood Trust will have access to financing offered by the FHLBC for certain assets," according to a joint press release issued by the FHLB and Redwood.
Negotiations to create this FHLB jumbo conduit were initiated over a year ago.