Feds OK Chicago FHLBank Funding Method

Federal regulators have signed off on a concept that would allow the Federal Home Loan Bank of Chicago to use an off-balance-sheet mechanism to fund its Mortgage Partnership Finance program."We are looking for off-balance-sheet ways of funding the mortgage program," said Nancy Schachman, a spokeswoman for the Chicago FHLBank. Ms. Schachman said she could not provide details because the structure is still in the planning stage. However, she indicated that the Chicago bank might be able to partner with entities outside the FHLBank System. The Chicago bank has $42 billion in MPF loans, which represents half of its assets. The bank used to fund its purchases of single-family mortgage loans through excess stock, but the Federal Housing Finance Board is requiring it to cut back. In approving the off-balance-sheet concept on April 18, the Finance Board also approved the Chicago bank's issuance of $1 billion in subordinated debt that can be used to repurchase excess stock and serve as capital for five years. It would be the first time an FHLBank issued a security where the other FHLBanks are not jointly responsible to cover a default.