The Federal Home Loan Bank of Topeka has announced a new plan to allow its members to invest in mortgages originated under the Mortgage Partnership Finance program.
Currently, FHLB members can sell originated mortgages to the MPF program as a secondary market alternative. Under the new option, which was approved by the Federal Housing Finance Agency, members of the Topeka bank will be able to purchase participations in pools of MPF single-family mortgages that were originated by other members.
The participation program is designed to reduce the Topeka FHLB’s concentration risk while offering members a higher yield than they can get from Fannie Mae and Freddie Mac mortgage-backed securities. The bank is aiming to get the program underway this summer.
The “buyers benefit from owning credit enhanced loans that have a similar credit profile to agency mortgage-backed securities while potentially offering higher returns,” Andrew Jetter, president and chief executive officer of the Federal Home Loan Bank of Topeka said in a press release Wednesday.
The mortgage participations could range from 1% to 95% of the loan amount. The Topeka FHLB would retain at least 5% of the credit risk.
In an interview, Dan Hess, the Topeka FHLB’s chief business officer, said the arrangement for the originating institutions selling loans through the MPF will not change. The originating institution is “not affected by the sale of the participation on the back end,” he said. Meanwhile, other home loan banks have shown interest in starting similar participation programs, he added.