An alternative secondary market program started in 1997 by the Federal Home Loan Bank of Chicago reached $1.8 billion in loans outstanding at yearend, an 87% increase from a year earlier.
Mortgage Partnership Finance registered future volume commitments of $6.6 billion, a 697% increase from $829 million in 1998. Six federal home loan banks are part of the program - Atlanta, Chicago, Dallas, Des Moines, New York, and Pittsburgh. Two others - in Boston and Topeka, Kan. - have applied to join, according to the Federal Housing Finance Board. Established to compete with Fannie Mae and Freddie Mac, the coalition itself could face competition from an initiative by home loan banks in Seattle, Cincinnati, and Indianapolis.
With adjustable-rate mortgages expected to grow to nearly one-third of all originations, the program, which is limited to fixed-rate loans, probably will have a tough 2000. But "even with a down year in originations, MPF will have a pretty significant up year, because we're coming in and taking market share from a fairly small position," said Alex J. Pollock, president and chief executive officer of the Federal Home Loan Bank of Chicago.
Analysts say Mortgage Partnership Finance has made no dent in the sizable market share of Fannie Mae and Freddie Mac, the largest purchasers of home loans.
"On this scale, it has no meaning," said Jonathan E. Gray, an analyst with Sanford C. Bernstein & Co. Inc. In 1999, Fannie's and Freddie's combined retained portfolios were close to $175 billion, he said.
Lenders in the Chicago bank's program that are members of the regional home loan banks are offered the opportunity to avoid guarantee fees charged by Fannie or Freddie but have to retain more of the risk of each loan. Credit risk and the customer relationship for each loan are managed by a local lender. The federal home loan bank that buys the loan also manages the funding, interest rate, liquidity, and prepayment risks.
Though small compared with Fannie and Freddie in purchasing power, Mortgage Partnership Finance is expanding geographically and has "exceptionally high credit quality" in its underwriting, Mr. Pollock said.
Through last year, 100 members had gained approval to fund loans through the program, compared with 45 in 1999.