Indianapolis FHLB Makes First Payout on MPP Aggregate Pool

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The Indianapolis Federal Home Loan Bank rewarded 43 of its members with a $761,000 payout in May for the performance of their mortgages in an aggregated pool.

Its marks the first time the Home Loan bank has made such a payout to its Mortgage Purchase Program participants since it first authorized the creation of aggregate pools in 2006.

The aggregated loan pool was closed in April 2011 and the bank allows a payout after five years if the Loan Risk Account exceeds expected losses on the pool.

"It's great to see FHLBI depository members receiving these payouts," said Dan Green, senior director of the FHLB's Mortgage Purchase Program. "It tells me they're lending well in their communities."

The payouts to the Home Loan bank members ranged from $65 to $112,000 and it is designed to reward members for selling high-quality loans to the Indianapolis FHLB. The bank declined to disclose the size of the aggregate pool, saying it is "confidential" information.

The FHLB frequently distributes LRA funds to individual members that form stand-alone MPP pools, according to Cathy Garrett, an MPP business development manager.

"But this is the first payout of an aggregated pool and we are very excited to see it come to fruition," she said in a press release.

The next MPP aggregate pool payout is expected in November. However, the LRA in that aggregate pool is funded very differently.

The loan loss reserve on the first MPP aggregate pool to achieve a payment was known as a "spread LRA." It was funded over time as the Indianapolis FHLB tapped principal and interest remittances to fund the LRA. But that approach had problems.

The spread LRA resulted in a slow build of reserves while refinancings and "prepayment speeds profoundly impacted" the funding of the reserve, according to the government-sponsored enterprise.

The Indianapolis Home Loan Bank abandoned the spread LRA in November 2010, although certain sellers can still exercise that option under their original master commitments.

Today, the bank mainly funds the LRA upfront at the time the loans are purchased. This approach is called Advantage MPP.

"The bank anticipates making the first LRA payout for an Advantage MPP pool in November," according to the press release.

The Indianapolis Home Loan Bank's Advantage MPP had a "very good year" in 2015 and purchased $2.7 billion in mortgages, up 70% compared to the prior year, according to Senior Vice President and Chief Financial Officer Greg Teare.

"The mortgage market was robust, and for many smaller depositories in Indiana and Michigan, our program is the best execution for their originations business. When you add in the potential for added income, it was an obvious choice," Teare said in a statement.

The FHLB holds $7.7 billion MPP loans in portfolio along with $425 million in Mortgage Partnership Finance loans that it acquired from another FHLB.

The combined MPP and MPF portfolio has a 0.48% serious delinquency rate (90 days or more past due).

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