The Federal Home Loan Bank of New York won approval Thursday for a pilot program that will split the credit and interest rate risk between private-sector mortgage lenders and the government-sponsored entity.
The Home Loan bank will package into pools single-family mortgages bought at market value from member banks and thrifts. For the first seven years members will receive 97% of the principal payments and 48.5% of the interest payments. After seven years the Home Loan bank will take on 97% of the risk as well as collect that much of the cash flow. Member banks and thrifts will collect just 3%, but will only be liable for 3% of any losses.