A Chicago-based government-sponsored enterprise is discontinuing its secondary purchases while another GSE is beefing up its efforts in Chicago.
The Federal Home Loan Bank of Chicago announced Wednesday that its board of directors and management have decided to stop entering new master commitments with member banks to purchase loans under the mortgage partnership finance program. In addition, the bank will not renew existing master commitments.
The decision was based on the bank's need to reposition its balance sheet and enhance risk management in light of volatile credit markets, the statement said.
"While the credit quality of the MPF portfolio is unparalleled, the absence of a current alternative to funding MPF purchases on the FHLBC balance sheet has resulted in a disproportionate concentration of these loans," the bank explained. "The hedging and funding costs for these loans, and the need to capitalize our loan portfolio while reducing voluntary stock, have had a significant adverse effect on our income, which ultimately disadvantages our members."
FHLB Chicago said it will only purchase loans that fund by July 31, 2008, under existing agreements.
The bank noted that many of its members have benefited from the program and it is reportedly working on an off-balance sheet alternative that utilizes the existing mortgage partnership finance interphase with outside investors. It will also continue to make advances to member institutions.
Support will be maintained for loans already purchased under the program, FHLB Chicago said.
"This decision and others that will follow decisively confront the issues before the bank to accelerate the transformation of our balance sheet, the stabilization of our capital, and the improvement of our earnings," the announcement concluded.
As FHLB Chicago backs off away from secondary purchases, Freddie Mac, which is also a GSE, is stepping up activity in Chicago.
Freddie will sponsor a four-city Legacy of Homeownership Tour in Chicago being kicked off by Chase on May 9, according to another announcement. The workshop will cover loan options and lender relationships, among other issues.
"The one-day seminar is designed to show African Americans how to establish and preserve their legacies through homeownership.," the statement said. "It includes informational workshops, access to community resources and one-on-one consultations with mortgage professionals."
The tour will continue in Houston, New York and Washington, D.C., the press release said.