Pedestal, the online mortgage trading network, plans to start funneling loans to the Federal Home Loan Banks' Mortgage Partnership Finance program this month.
The Washington network would create a three-way connection between the Home Loan Banks' alternative secondary marketing program, a group of three or four participating banks, and their correspondent originators.
The correspondents would sell loans to the banks, which in turn sell directly to Mortgage Partnership Finance.
Pedestal is close to signing a deal with one lender and is in discussions with others, a spokesman said.
The program's Web site, MPFLink.com, would give it access to more originators, and would make trading easier for all participants, the spokesman said. Instead of sending faxes and exchanging phone calls, the parties would be able to execute loan trades by simply pressing a button.
The initiative would also make loan prices more transparent, he said, because every participating company would see the same price on MPFLink. That, the spokesman said, would prevent price discrimination against smaller companies for delivering less volume.
The move is important to the Home Loan Banks because it would provide them with a high-tech connection to their customer base, the spokesman added. Fannie Mae and Freddie Mac, its two chief competitors in buying mortgage loans, have a strong presence on the Internet, and sophisticated electronic connections with brokers and lenders.
Mortgage Partnership Finance, a three-year-old program developed and run by the Chicago Home Loan Bank, uses a unique risk-splitting feature whereby the lender keeps the credit risk on a loan and the Home Loan Bank takes on the prepayment and interest rate risk.
Though it purchases fewer loans than Fannie and Freddie, Mortgage Partnership Finance is poised for significant growth. Its volume of loans outstanding has skyrocketed 496% this year, to $10.8 billion as of June 30.
The program buys conventional, FHA, and VA loans. Much of its growth has been in FHA loans, which it started buying in January, taking a big chunk of Ginnie Mae's share of that market.
Fannie Mae has indicated that it considers the program a real competitor. Franklin Raines, Fannie's chairman and chief executive officer, recommended recently that the Home Loan banks be subjected to the same risk-based capital standards as Fannie and Freddie, which he said are much stronger than what the banks currently have to comply with.
Pedestal would provide MPFLink users with the customer service and sales help it offers its other customers. It has dedicated four or five people to work solely on MPFLink's pricing, marketing, and strategic alliances.