A program to let the Federal Home Loan Bank of New York underwrite affordable housing and community development loans has some thrift industry representatives crying foul.

The pilot project, which was authorized by the Federal Housing Finance Board July 3, would allow the New York district bank to underwrite mortgages jointly with its members. The program comes in response to complaints by member institutions, who said federal rules limiting the amount they can lend to one borrower prevented them from financing large community development projects.

Several thrift industry representatives charge the initiative will expose Home Loan banks, which currently cannot invest directly in any project, to unprecedented credit risk.

"This will subject the system to risk that it has never faced before," said Lou Nevins, president of the Western League of Savings Institutions. "When the FDIC closes a thrift, any advances outstanding get paid off, but in this situation, the Federal Home Loan Bank can take losses."

The program opens the door for Home Loan banks to compete directly against private institutions, Mr. Nevins charged.

Others questioned the necessity of the program. "When a smaller institution wants to make a large loan, it should be more than able to find participants of its own," said Eric Sand berg, president of the Texas Savings and Community Bankers Association.

In an interview Tuesday, Federal Housing Finance Board Chairman Bruce Morrison said the Home Loan banks can manage the credit risks posed by the program. For example, the New York bank will not hold more than $250 million in mortgages and it must submit a report to the agency every month during the first year of the project, Mr. Morrison said.

"It's not as if we are rushing into this headlong," Mr. Morrison said. "This is a showcase of what the system ought to be doing, which is to develop products responsive to the needs of members and the members' community."

Mr. Morrison said the program will not transform Home Loan banks into government-backed entities that compete with private institutions.

"This is simply credit support," he said. "Direct lending would exist if the Home Loan bank created a direct customer relationship with the borrower, and that just isn't the case here."

The program is crucial to Home Loan bank members' ability to compete with nonbank mortgage lenders, said Alfred A. DelliBovi, president of the New York bank.

"This is a way we can help our stockholders become more effective competitors in the changing mortgage market," Mr. DelliBovi said.

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