To the Editor:
On March 10, the Federal Housing Finance Board held hearings on Federal Home Loan Bank pilot programs, including the mortgage partnership finance (MPF) program of our bank.
The result, according to most observers who were there, was a decisive intellectual and policy victory for MPF.
(Editor's Note: Under the plan, member banks and thrifts would originate and service mortgages that the Chicago Home Loan Bank would fund and hold.)
The subsequent American Banker article published on March 17 ("Chicago Plan Called Step to Direct Lending by Home Loan Banks," page 4) did state the essential facts:
"The majority of those invited to the hearing support the program."
"Only a handful out 25 people testifying disagree with the plan."
However, the article did not mention who any of the members of the substantial favorable majority were, or mention any of their conclusions.
They supported it both from a business and a public policy point of view, and the supporters included sophisticated, successful thrift CEOs; the National Association of Home Builders; the Illinois League of Financial Institutions; the National Association of Affordable Housing Lenders; the Mortgage Bankers Association of America; the Local Initiatives Support Corporation; Preston Martin, former vice chairman of the Federal Reserve board of governors and former chairman of the Federal Home Loan Mortgage Corp.; and David Wilhelm, former national chairman of the Democratic National Committee and a director of our bank.
As with all new product ideas, of course, the real test is not what people-even a large majority of knowledgeable commentators-think about it in advance. The real test is the market. Since MPF is entirely a partnership with member financial institutions, no MPF transaction can happen unless the member wants it to. MPF loans can only be created by the decisions of our members. Thus, only if MPF creates value for our members will it succeed and grow.
The one thing we are certain of is that MPF deserves a market test, so that the member financial institutions can decide for themselves about its value. The handful mentioned in the American Banker article wish to tell other members that they are not allowed to have a market test. They wish, in short, to deprive other financial institutions of the option to decide for themselves. It is hardly surprising that such a position failed to carry the day at the hearings.
Our research and discussions with many member institutions suggest that MPF will prove to be an extremely valuable option for the members and to the American mortgage finance system. This is because MPF:
1. Helps make member institutions more effective suppliers of mortgage credit.
2. Works exclusively in partnership with the members.
3. Brings more flexibility and local judgment to mortgage credit.
4. Is 100%, precisely on target with the mission of the Federal Home Loan banks.
5. Is a modernized version of what the Home Loan banks' goal has always been: promoting sound and economical home finance.
6. Disperses credit risk instead of centralizing credit risk.
7. Is pro-competitive. Specifically, it enhances competition in the GSE sector, which essentially everyone agrees is needed.
We believe it is more than obvious that MPF is worth a market test. Stay tuned.
Alex J. Pollock
President and CEO,Federal Home Loan Bank of Chicago