The Federal Home Loan Bank System was created to provide a reliable and readily accessible flow of liquidity to member financial institutions more than 90 years ago. One way we do this is through products such as the Mortgage Partnership Finance (MPF) program, which is currently used by six Home Loan banks fulfilling our housing finance mission as we celebrated our 26th anniversary last week.
A recent BankThink article “The Federal Home Loan banks and the disappearing American dream” inaccurately describes our products and the role of the Home Loan banks in the mortgage markets. We are very proud of the MPF program’s success in enabling millions of American families in every U.S. state and territory to buy a new home or lower the cost of their existing homes in furtherance of our statutory mission. For example, the MPF program provides more than 700 community lenders across the nation with a competitive secondary mortgage market option to sell their fixed-rate residential mortgage loans. In 2022, Home Loan bank members used various MPF products to sell more than 33,500 mortgages totaling $8.1 billion. Over 80% of the MPF participants are small community lenders with assets under $1.5 billion that otherwise would not have the ability to offer mortgage loans to their customers, or do so competitively. Additionally, more than one third of the mortgage loans purchased by Home Loan banks through the MPF program for investment or securitized through our MPF products were made to low- or very low-income borrowers or made to borrowers in low-income areas.
The MPF program serves a critical need in the current mortgage landscape, particularly for small lenders that lack direct access to the broader secondary mortgage market. The program supports the mission of the Home Loan banks, and often it is the best way for participating community lenders to provide traditional fixed-rate, freely prepayable mortgages that their customers expect.
“The MPF program keeps us competitive in the markets we serve through their unique mortgage products. The fact that we are able to retain servicing is an important feature that allows us to keep that ‘small town bank’ feel as we continue to develop customer relationships,” said Joni Jorgenson, VP, Mortgage Lender at Western Nebraska Bank.
“For most people, purchasing a home or piece of real estate is one of the biggest transactions they’ll ever do,” said Nick Brooks, IAA Credit Union’s vice president of lending. “Since we now maintain control over the whole lending process, we can ease the anxiety that our members may have, and it gives them confidence in a transaction that’s new to them.”
The BankThink article infers that the Home Loan banks are partially responsible for “tens of millions of Americans who have been unfairly denied homeownership,” which is inaccurate. We do not impose technology on our ecosystem of lenders, nor are we “hamstrung by decades-old, loan underwriting technology.” In fact, quite the opposite. Unlike other secondary market entities, the traditional MPF products do not use proprietary underwriting software to underwrite loans and do not approve or reject the origination of loans. Rather, participating lenders use their own origination systems to submit loans into our systems.
We allow members to use Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Product Advisor Automated Underwriting Systems in submitting loans to us, but those are not our systems. Additionally, we do not mandate what technology must be used by members to underwrite loans. Some members choose to underwrite loans manually.
Regarding the real issues raised in the article, one is the statistical basis and appropriateness of FICO scores as opposed to more big-data driven types of statistical analyses — a concept we don’t oppose, but one to address with the mortgage marketplace in general, rather than the Federal Home Loan banks. Home Loan banks directly purchase mortgage loans from our member financial institutions. This gives them a liquidity alternative to the traditional government-sponsored enterprise securitization channels. The article’s implication that members in the MPF program would necessarily turn down loans to borrowers with low FICO scores because of the program is also incorrect, because the FICO score is just one of the data points used in assessing the credit quality of the loans. Loans can be sold into the MPF program in certain cases without FICO scores.
Another issue the authors raise is the racial homeownership gap, an issue that the Home Loan banks fully acknowledge and are committed to improve through different measures and programs. One example of such a program is the Home Loan Bank of Chicago’s Community First Housing Counseling Resource Program. Investment in education, training and additional resources are critical in assisting first-time homebuyers. We are working with housing counseling agencies to assist in expanding support to minority and low- and moderate-income homebuyers in need. Another example is the Home Loan Bank of Boston’s Lift Up Homeownership program, which provides down payment and closing-cost assistance to people of color purchasing their first home.
For 26 years, the Mortgage Partnership Finance program has provided community lenders with an innovative way to share mortgage risk as they originate loans to borrowers in their communities. We are always looking for new technology, better ways to serve communities across the country and to do our part in creating equitable solutions for all our members and their communities. We appreciate and share the concerns on the broader societal issues facing homeownership in America, but felt it appropriate to set the record straight on the scope of the MPF program.