The Federal Housing Finance Agency last week lifted an eight-year-old cease-and-desist order against the Federal Home Loan Bank of Chicago, which pioneered the Mortgage Partnership Program back in the 1990s.
“The Chicago FHLBank’s improvements in earnings, capitalization and risk management coupled with its conversion to a new capital structure represent significant achievements in the bank’s recovery,” said FHFA acting director Edward DeMarco.
“The bank has satisfied the requirements of the cease-and-desist order and has committed to focus its business activities on advances to members.”
The FHFA’s predecessor, the Federal Housing Finance Board, clamped down on the Chicago FHLB eight years ago for capitalizing its growing MPF mortgage portfolio through the issuance of excess stock.
Despite the various regulators’ qualms about the MPF program, a handful of FHLBs continue to purchase MPF loans from their members and Chicago continues to manage and administer the program. (The program provides a secondary market alternative to Fannie Mae and Freddie Mac.)
Chicago FHLB members funded $1.9 billion of MFP loans in 2011, which the Boston FHLB holds for the Chicago bank under a special participation agreement. Other FHLBs purchased $5.1 billion of MPF loans from their members.
Now that the FHFA has terminated the cease-and-desist order, the Chicago bank can declare its quarterly dividends without seeking regulatory approval, provided it does not exceed the average of the three-month LIBOR or reduce the bank’s retained earnings, according to Chicago FHLB president Matt Feldman.
“We are thrilled that we can devote our undivided attention to building the member-focused bank by providing solutions to support your funding, asset/liability management and community development initiatives,” Feldman said in an April 18 note to members.
