MReport April 2019

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20 | TH E M R EP O RT FEATURE D&I: Driving Business Strategy Diversity and inclusion really works when it's part of a strategy that pushes the business towards better performance and that's where the Federal Home Loan Bank of Chicago is leading the way. By Radhika Ojha T he Federal Home Loan Bank Chicago (FHLBank Chicago) is a case study in how diversity and inclusion (D&I), when integrated with business strategy, can create a win-win for an organization as well as the people it serves. "Our tagline is, 'member-owned and member-focused.' We recognize that our members create value in the markets and the communities that they participate in, and for us it's part of our business strategy," said Cedric D. Thurman, SVP, Chief Diversity Officer at FHLBank Chicago. "We're going to be more effective as an organization delivering value to our members when we have employees who are highly engaged, who come to work excited to be here every single day looking to do their best for our members. This attitude helps our members do best in their communities." And it's the members of the Federal Home Loan Banks (FHLBanks) who are driving the growth of the Federal Home Loan Bank System (FHLBank System). In 2018, a year where most lenders saw a declining origination environment, FHLBanks used their Mortgage Partnership Finance® (MPF®) Program product to purchase about $13.6 billion worth of mortgage loans from their member institutions, most of which are small- to medium-size community banks and credit unions. When compared with the $11.9 billion worth of loans purchased by the program in 2017, the portfolio grew 14 percent year-over-year. This, in a year when the typical lender probably saw a reduction in their originations. "The MPF Program focuses on members of the Federal Home Loan Bank System particularly community lenders," said John Stocchetti, EVP and Group Head of the MPF Program at FHLBank Chicago. "It gives a platform to some of the smaller players who would not get the attention of secondary market players, except for the fact that we bring economic muscle to their ability in the secondary market." But, to truly understand how the MPF Program and other initiatives have helped to foster D&I not only at the community banks level but also within FHLBank Chicago, it is important to get a historical perspective on the FHLBank System and how a crisis helped to create regulation that has made D&I an integral strategy at these institutions. Looking Back T hough it isn't a very well- known fact, the FHLBanks were founded through the Federal Home Loan Bank Act of 1932 making them the oldest housing government-sponsored enterprise (GSE). Fannie Mae was founded in 1938 and Freddie Mac, the youngest of the group, was founded in 1970. Collectively the FHLBank System is one of the largest financial institutions in the country with around $1.1 trillion in assets across 11 FHLBanks. As of December 31, 2018, the FHLBank System has a customer base of over 6,800 members. To become a member, the institution must be a bank or a credit union, insurance company, or a commu- nity development finance institution. "Everyone places Fannie, Freddie, and FHLBanks in that order in terms of size. When I say we're virtually similar, people are surprised," said Steve Thomas, Senior Managing Director, Mortgage Capital Markets, at FHLBank Chicago. "In terms of active MPF loan sellers each year, the FHLBanks have about the same number of customers as Fannie and Freddie in that when you add the two FHLBanks that run their mortgage programs independently we're a little over 1,000 sellers just like they are." In 2008, when the crisis struck and the Housing and Economic Recovery Act (HERA) regulation came into effect, the legislation added very specific language that laid the groundwork of creating a business that was driven by D&I. "In that regulation, it called for greater inclusion, utilization of minorities and women and firms owned by them in the business activities of Fannie, Freddie, and the Federal Home Loan Banks," Thomas explained. "That was the catalyst to real change and a new discussion within the Federal Home Loan Bank System of looking at D&I not just from a work force perspective but in all areas such as our capital markets activity, and even activities with diverse vendors and suppliers." The FHLBank Chicago did its first assets transaction, a purchase

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