SAN FRANCISCO - The Federal Home Loan Banks' alternative secondary marketing program poses a real threat to Fannie Mae and Freddie Mac, says the chairman of the nation's largest thrift.

Speaking at the California Mortgage Bankers Association's western secondary market conference last week, Kerry Killinger, the chairman, president, and chief executive of Seattle-based Washington Mutual Inc., said the Home Loan banks' Mortgage Partnership Finance program will steal market share from Fannie and Freddie.

Mr. Killinger may be somewhat biased, however, in trumpeting the Home Loan banks' potential: His company is the largest shareholder in the Seattle and San Francisco Home Loan banks.

"The duopoly of Fannie Mae and Freddie Mac are well positioned," he said, "but challenges from the Federal Home Loan Banks will erode their respective market shares."

In the Mortgage Partnership Finance program, the mortgage lender retains the credit risk of a loan and the Home Loan bank takes on other risks, such as interest rate risk and prepayment risk. The lender is paid a fee for holding on to the credit risk. Proponents of this arrangement say it is a better deal for the lender over the life of the loan than selling to Fannie or Freddie.

Mr. Killinger said the Home Loan banks have one disadvantage: They are less leveraged than Fannie or Freddie. However, he said, the Home Loan banks are cooperatives, so they need to earn a return on equity of only 8% to 9%. Fannie and Freddie are publicly traded companies and must earn 20% or more on equity to satisfy shareholders.

Mortgage Partnership Fi-nance has been growing astronomically in recent months. At the end of June, the program had $10.2 billion of loans outstanding, up 469% from the beginning of the year. The Federal Housing Finance Board, the Home Loan banks' regulator, recently removed a $9 billion cap on the program and give it permanent status.

In his speech, Mr. Killinger also said Fannie Mae and Freddie Mac's recent political troubles are not over and will limit their ability to enter new markets. He said he expects "pressure from groups such as FM Watch and Congress to limit the mission expansion" of the government-sponsored enterprises.

"As a result," he said, "there will be opportunities for portfolio lenders to appropriately serve many niche markets - such as jumbos, unique properties, credit-impaired borrowers, construction loans, and other nonroutine types of loans."

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