Smaller banks wary of holding jumbo mortgages may soon have access to a new buyer, thanks to an unusual move by the Federal Home Loan Bank of Chicago.

The government-chartered cooperative last week agreed to a partnership with Redwood Trust, a real estate investment trust in Mill Valley, Calif., that buys and securitizes home loans, to create a conduit for jumbo mortgages. The program, Mortgage Partnership Finance Direct, will allow FHLB members nationwide to sell jumbo mortgages to Redwood, substantially expanding the secondary market for such loans.

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