The government is expected to approve a pilot program allowing the Federal Home Loan Bank of Seattle to buy mortgages from member institutions.

The Federal Housing Finance Board is expected to publish the plan for comment in today's Federal Register.

Under the pilot, member banks and thrifts would originate Federal Housing Administration-insured loans that benefit low- and moderate-income families. The institutions would sell the mortgages to the Seattle bank, which initially would be allowed to buy up to $25 million of the loans.

"By providing technical assistance and an outlet for the loans, we see an opportunity to stimulate more lease-to-own lending," said James R. Faulstich, president and chief executive of the Seattle Home Loan Bank.

The pilot involves the FHA 203 loan program, under which nonprofit organizations or government housing authorities enter into lease-to-own agreements with families. A portion of each lease payment is set aside until an amount is accumulated sufficient to make the required 3% down payment. At that point the family takes on the FHA-insured mortgage.

Typically lenders must accumulate a $1 million pool of these mortgages and then package them into securities backed by the Government National Mortgage Association, or Ginnie Mae. But under the Seattle plan, lenders could sell the loans immediately. In addition, the Seattle Home Loan Bank would pay members servicing fees that are about 6 basis points higher than Ginnie Mae's.

The finance board has approved similar pilot programs for the Chicago, Atlanta, and New York Home Loan banks. While unique aspects of the Chicago program have stirred controversy, the Seattle pilot is unlikely to draw such fire, industry sources said.

"This is the perfect example of a public-private partnership that provides opportunities to make loans that might not otherwise get made," said Robert P. Schmermund, spokesman for America's Community Bankers.

Finance Board Chairman Bruce Morrison declined to comment on the Seattle pilot. Comments on the plan are due Sept. 8; the board could vote on it later that month, a spokesman said.

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