Colonial Savings has started funding residential mortgage loans through the Federal Home Loan Bank of Chicago's Mortgage Partnership Finance program.

These loans will be the first to be funded through the mortgage partnership by a lender outside the Chicago bank's district of Illinois and Wisconsin.

Colonial Savings, with $700 million of assets, is a member of the Dallas Federal Home Loan Bank, which is retaining a participation in the loans.

Colonial Savings has a servicing portfolio of more than $6 billion and makes most of its loans through Fort Worth Mortgage, one of its units.

The program creates competition in the secondary mortgage market by giving thrift and commercial bank lenders an alternative to selling fixed- rate mortgages to Fannie Mae and Freddie Mac.

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