The Federal Home Loan Bank of San Francisco has received a regulatory waiver to start making grants of up to $25,000 to help low- and moderate-income homeowners refinance out of nontraditional and subprime mortgages and into a fixed-rate 30-year mortgage. FHLBank member banks and thrifts have to put up $2 for every $1 in grant money to participate in the new affordable housing pilot program. The $2 match is to ensure that members take a loss when the principal amount of an underwater mortgage is written down to meet a 97% loan-to-value ratio requirement for the new mortgage. In approving the grant program, Federal Housing Finance Board members stressed that they want the pilot program to provide sustainable mortgages for the borrowers who cannot afford the resets on their current adjustable mortgages. And they don't want the program used to "bail out" lenders that made bad loans. Other FHLBanks are expected to seek similar waivers, and the Finance Board plans to issue an interim rule for public comment.

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