How do the FHLBank mortgage asset programs work?
Currently, all 12 FHLBanks have some mortgage assets held in portfolio. Mortgage Partnership Finance (MPF) was launched first, in 1997, with the Mortgage Purchase Program following in 2000. Both are breakthrough programs in that they split the risks associated with underwriting mortgages. Members originate mortgage loans and pool them at an FHLBank. The originating lender manages the credit risk and customer relationship, while the FHLBank manages the interest rate risk. Unbundling the lending risk allows members to focus on what they know best – credit, and allows the FHLBank System to focus on what it knows best – hedging interest rate risk. Because there are no guarantee fees to pay, lenders are able to price more competitively, bringing down the cost of homeownership. At the end of Q3 2009, FHLBank mortgage assets equaled $74 billion. The average loan size has traditionally been about $130,000, with a FICO score around 740 and an LTV of 69%.
