MReport April 2019

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22 | TH E M R EP O RT FEATURE of a bond with a diverse firm in 2015 through a program which established a framework under which we could qualify diverse vendors like women-, minority-, and disabled veteran-owned broker dealers as counterparts," Thomas said. Since then, FHLBank Chicago has focused on this effort in two different ways. "The first was to develop standards to approve counterparties, new diverse firms, and today we have 12 diverse firms as counterparties," Thomas said. "The second goal has been to utilize them, to do transactions with them." On the asset side, "approxi- mately a third of our transactions in 2018 were conducted with diverse firms. It exceeded the normal activities that you would think business folks are doing with diverse firms on Wall Street," Thomas said. A Driving Force T he MPF Program was introduced in the late 90s by the FHLBank Chicago to make mortgage purchase available to its members. Today, FHLBank Chicago does the back-office processing for eight FHLBanks (that also includes Chicago) to run a successful MPF Program. "Chicago basically acts like the backroom office for all of the processing of those loan purchas- es, and we provide that service to the other Federal Home Loan Banks that participate with us," said Eric Schambow, SVP and Senior Director of MPF Product Management at FHLBank Chicago. "By providing operational sup- port of those processes to each of the FHLBanks that participate in the MPF Program, we don't have to duplicate those pro- cesses in their individual dis- tricts," Schambow said. "It's more economical for us to do a shared service across the eight Federal Home Loan Banks in providing this product line in each of those FHLBanks' districts." Apart from its flagship product that consists of conventional and conforming loans that the bank can acquire through its risk sharing products, it also buys government loans. "We buy FHA, VA, rural housing, and loans in smaller quantity for the Native American tribal land loans for residential purposes," Schambow explained. "We also buy those loans and place them on our balance sheet as an asset." Over the 21 years since the MPF Program first started, the program has evolved some of its product suite. In 2008, it part- nered with Fannie Mae to be able to buy conventional, conforming loans but not put them under a credit risk sharing arrangement. Instead, the product allows it to be a Fannie Mae-style product and the FHLBanks can buy loans from the members of the FHLBanks that participate under the MPF Program and collectively resell those loans to Fannie Mae. "We continue to acquire loans through that product since 2008 and sell them immediately to Fannie Mae," Schambow said. "We also buy government loans and have been partners with Ginnie Mae since 2015 to securitize government loans through the agency. So, some of the govern- ment loans we put on our balance sheet, and others we pool into Ginnie Mae securities" Thomas and his Mortgage Capital Markets team or the trade desk, is the part that joins FHLBank Chicago to the MPF Program, which is part of the larger FHLBank system. "We're really performing dual functions for FHLBank Chicago. For the balance sheet we're buying mortgage security related inves- ments from Wall Street and MPF loans from our members," Thomas said. "Then we are also responsible for producing what we call a national price for the MPF products. This is the price that each FHLBank can use so they don't have to individually set their own price and can use our price to adjust it up or down to their liking for their own balance sheet." Thomas' team is also respon- sible for the MPF Government mortgage-backed security (MBS) product for which it has part- nered with Ginnie Mae, to produce rate sheets for the product every day. "We put out prices every day to acquire those loans and then buy, hedge, and ultimately securitize them into Ginnie Mae MBS," he said. "Essentially, we're like a cash window for Ginnie Mae since we're able to buy from all our local financial institutions that participate and accumulate and pool those into monthly issuances of securities, but all the servicing can still remain in their local institutions across the country—a very important piece of what we designed under this product and what helps to make it work," Schambow added. "We acquire those loans here in Chicago on behalf of all the FHLBanks that participate in that product and we build our assets on our balance sheet to securitize the loans." Leveling the Playing Field T he MPF Program in many ways has given smaller community banks and credit unions a chance to effectively access the secondary market. "One way that we foster competi- tion is by purchasing loans where we are the ultimate investor in some cases," Stocchetti said. "In that case, we're adding more bids in the marketplace. We're adding more competition directly by offering to purchase loans." According to Stocchetti the program, which began over 21 years ago, was started because community lenders were not "I often say 'keep focused on the value that we're bringing to those community lenders and their customers. Their customers essentially are people like us, who are buying homes and raising families.' I think it's important to keep that in mind as well in terms of what it means as we're increasing value and volume." —John Stocchetti, EVP and Group Head of the MPF Program, Federal Home Loan Bank of Chicago

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