Regulatory Order Collars FHLB Chicago

CHICAGO – The Federal Home Loan Bank of Chicago yesterday said it signed a cease and desist order with its federal regulator, the Federal Housing Finance Board, which, among other things, limits growth in its secondary mortgage market program, known as Mortgage Partnership Finance. The order will limit growth in the program to 10% a year and set strict capital limits. The Chicago Bank, stuck with $34 billion of mortgages bought from banks and credit unions, currently is negotiating a merger with the FHLB of Dallas, but the future of the huge mortgage portfolio has yet to be decided. The regulatory order will require the Chicago Bank to limit stock redemptions if capital standards are not met. The order also requires the regulator approve any dividends paid by the Chicago Bank. "As a result of this order, we do not expect that we will be able to conduct a broad redemption of voluntary stock in the fourth quarter of this year," said Mike Thomas, CEO of the Bank, in an Oct. 10 letter to credit union and bank members. "With regard to dividends, the Board will continue to assess our dividend capacity each quarter."