The Federal Home Loan Bank of Chicago's net income grew 20.9% last year, to $111.8 billion, despite a cooling home mortgage market.
The bank reported that its assets grew 17.3%, to $29.2 billion, and outstanding loans jumped 15.2%, to $17.2 billion, because of "strong loan demand" from member banks and thrifts, the bank said.
The Chicago bank's alternative secondary market program, the Mortgage Partnership Finance program, or MPF, also grew. The volume of loans bought under the program grew 87.4% last year, to $1.8 billion. The program grew another 38.8% in January alone, to $2.5 billion, said Alex J. Pollock, president and chief executive officer.
"All aspects of the business were growing, including membership, advances, MPF," he said. "In general the bank has had a very robust year."
Bank and thrift commitments to sell loans to federal Home Loan banks under the MPF program soared 696% last year, to $6.6 billion, the Home Loan bank said. And just last month commitments grew to $21.7 billion, Mr. Pollock said.
In January the program gained a boost when the U.S. Court of Appeals for the Fifth Circuit upheld the legal authority of the Chicago bank to operate the alternative secondary market program.
The Mortgage Partnership Finance program, which began in 1997, competes with Fannie Mae and Freddie Mac, the largest buyers of home loans in the secondary market. Six Federal Home Loan banks are part of the Chicago program - those in Atlanta, Chicago, Dallas, Des Moines, New York, and Pittsburgh. Two others - in Boston and Topeka, Kan. - have applied to join, according to the Federal Housing Finance Board. Home Loan banks in Seattle, Cincinnati, and Indianapolis may also create their own secondary market program.
Lenders in the Chicago program that are members of the regional Home Loan banks can sell fixed-rate loans into the program and avoid guarantee fees charged by Fannie or Freddie. But they have to retain more of the risk of each loan. Credit risk and the customer relationship for each loan are managed by a local lender. The Federal Home Loan bank that buys the loan manages the funding, interest rate, liquidity, and prepayment risks.
Mr. Pollock said the program would continue to grow despite the reduction in fixed-rate mortgage lending. "If we were in a down interest rate scenario where you had significant refinance activity, MPF would be growing even faster," he said.
More than 100 institutions are approved to participate in the secondary market program, more than double the number in 1998.
The Chicago bank also said it awarded direct grants of about $9.3 million, representing 10% of its net earnings, to its Affordable Housing Program last year. These funds financed 62 member-sponsored projects.
The Chicago bank said that last year it also provided grants for more than $1.3 million in down payment and closing cost assistance through its members to help 440 low- and moderate-income borrowers become homeowners.
Membership in the Chicago bank grew 5.2% last year, to 812. Sixty-two percent of eligible commercial banks and thrifts in Illinois and Wisconsin are now members, up from 17% in 1991, the bank said.