The Federal Home Loan Bank of Chicago has told a judge that its controversial pilot program to fund and hold mortgages is completely legal.
It urged a District Court judge in Austin, Tex., to dismiss a challenge by the Western League of Savings Institutions and several thrifts, which charges that the Home Loan banks are improperly making direct loans to homebuyers.
At issue is the Mortgage Partnership Finance pilot program, which allows the Home Loan banks to manage interest rate risk for mortgages originated and serviced by participating institutions.
The Chicago district bank argued that there is virtually no difference between pilot program loans and regular Home Loan bank lending. In both programs, Home Loan bank officials do not interact with customers or market and underwrite the loans, they said.
Five other Home Loan banks, six thrifts, and two trade groups supported the Chicago district bank in the brief, filed Oct. 17.
Since the pilot program began in June, the Home Loan banks have funded $10 million in fixed-rate mortgages through four member institutions.
The Finance Board designed the program to fund $750 million in loans through as many as 20 member institutions.