ABA Sub to Offer MPF Pool Insurance

A for-profit subsidiary of the American Bankers Association is going to provide a form of pool insurance for Mortgage Partnership Finance loans so that small community banks selling loans to the Federal Home Loans Banks can earn more fee income."It is cross-pool insurance for individual loans and small pools," said ABA senior counsel Joseph Pigg. The FHLBanks will pay ABA's Corporation for American Banking for insuring a portion of the credit risk associated with small, geographically concentrated pools of residential mortgage loans. This credit enhancement will enable FHLBanks to pay participating community banks up to 14% more fee income over the life of the loan. But the actual pricing of the loans will remain the same, a Chicago FHLBank official said. In addition to servicing fees, banks and thrifts receive fee income for retaining a portion of the credit risk on MPF loans. To participate in the ABA/MPF alliance, a community bank has to be a member of an FHLBank that offers the MPF program. "You do not have to be an ABA member to participate," Mr. Pigg said. The ABA can be found online at http://www.aba.com.