The Federal Home Loan Bank of Chicago announced Monday it plans to issue mortgage-backed securities guaranteed by the Government National Mortgage Association, or Ginnie Mae.

The new product, known as MPF government mortgage-backed securities, aims to provide smaller mortgage lenders with a reliable way to sell home loans. It will allow the Federal Home Loan Bank to buy government-insured loans from lenders, hold those loans on the balance sheet, and pool them into Ginnie Mae-guaranteed securities which can then be sold to investors.

"We are committed to supporting the mortgage activities of community lenders across the country that are members of the Federal Home Loan Banks," Federal Home Loan Bank of Chicago president Matt Feldman said in a press release. "This product will allow participating members to be more competitive in their communities and to provide them better pricing to enhance access to affordable mortgage financing in the communities they serve."

The new securities will first become available to eligible lenders in Illinois and Wisconsin before a broader rollout next year.

Ginnie Mae guarantees timely payment of principal and interest on more than $1.4 trillion of mortgage-backed securities. The underlying loans are insured by the Federal Housing Administration and the Department of Veterans Affairs, as well as programs run by the Office of Public and Indian Housing and the Department of Agriculture's Rural Development Housing and Community Facilities Program.

The Federal Home Loan Bank of Chicago introduced the Mortgage Partnership Finance program in 1997 with the hopes that it would compete with Fannie Mae and Freddie Mac for lenders' secondary market business. Other FHLBs followed suit with similar initiatives. The Chicago and Seattle Home Loan banks pursued ways to securitize the loans they bought from member banks, but found only limited success.

Unable to securitize, the Home Loan banks had no choice but to retain mortgages on their books, ultimately largely killing the programs when loans started going bad during the financial crisis. The Chicago Home Loan bank stopped making purchases under its program in 2008. But the FHLBs started dramatically increasing mortgage purchases last year.

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