CHICAGO – The Federal Home Loan Bank of Chicago, which created the FHLBs’ secondary mortgage market program, said yesterday it is ending its own participation in the 10-year-old program, known as Mortgage Partnership Finance.
With several other FHLBs already having shuttered their own MPF program in recent years, this likely signals the end of the FHLBs foray into the secondary mortgage market.
The move comes as the Chicago Bank continues to hold some $33 billion in loans it bought from its member banks and credit unions and other FHLBs under the secondary market program but has no place to sell them. FHLB regulations also bar the Chicago Bank from securitizing the mortgages and selling them on the secondary market as bonds. "While the credit quality of the MPF portfolio is unparalleled, the absence of a current alternative to funding MPF purchases on the FHLBC balance sheet has resulted in a disproportionate concentration of these loans," said Mathew Feldman, acting president of the Chicago Bank.
The large holding prompted the Chicago Bank to enter into merger discussions with the FHLB of Dallas, but those talks were terminated earlier this month and Mike Thomas, CEO of the Chicago Bank resigned.
The difficulties in holding the large mortgage portfolio, most of it highly rated, caused the FHLB regulator, the Federal Housing Finance Board, to enter a supervisory agreement with the Chicago Bank limiting stock redemptions in order to preserve its capital.
