The Federal Housing Finance Board was sued Friday over a pilot program that thrifts charge presents illegal competition for home mortgages.

Under the pilot, approved by the Finance Board in January and expected to start next month, the Federal Home Loan Bank of Chicago would fund and hold mortgages made by member banks and thrifts.

A group of thrifts and their trade associations filed the suit Friday with the U.S. District Court in Austin, Tex. The plaintiffs, who include the Western League of Savings Institutions, said the Finance Board did not have the authority to approve the Chicago program.

Also suing are the Texas Savings and Community Bankers Association; Charter One Bank, Cleveland; World Savings Bank, Austin; and World Savings and Loan Association, Oakland, Calif.

According to the suit, the Finance Board permitted the Chicago Home Loan bank to engage in "illegal, unauthorized" competition with member banks and thrifts for residential home mortgage loans.

In a statement issued Friday, Finance Board Chairman Bruce Morrison accused the plaintiffs of trying "to deny the thrifts and banks in Illinois and Wisconsin the opportunity to enhance their effectiveness as mortgage lenders."

"The federal courts will not permit a self-interested few to deny these benefits to those many system members and their customers who want them," Mr. Morrison said.

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