Financial Update (Fourth Quarter 2003)


 Check 21 Act

 Education Summit

 Fed Customer
 Satisfaction Survey

 Guynn Foresees
 Balanced Growth

 FHLB Mortgage

 New Atlanta Fed
 Chair and Deputy

 Debut of new $20

 Online guide for
 bank applications


 Data Bank

 Circular Letters



The Federal Home Loan Bank and
Mortgage Markets

In 1997 the Federal Home Loan Bank of Chicago began purchasing pools of conforming mortgages under its Mortgage Partnership Finance Program. Today, nine Federal Home Loan Banks (FHLBs) offer this program, and the remaining three offer their own Mortgage Purchase Programs.

The FHLB System is a government-sponsored enterprise created by Congress to support residential housing finance. Historically, the twelve regional wholesale banks that constitute the FHLB System have pursued this goal by making loans to their depository institution members secured by residential mortgage loans.

The FHLB Mortgage Partnership Finance and Mortgage Purchase programs represent a small but growing part of the secondary conforming mortgage market, which has traditionally been dominated by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). A recent Economic Review article by W. Scott Frame examines the various FHLB mortgage programs offered, analyzes the evolving competitive environment in the secondary conforming mortgage market, and identifies implications for this market.

Consumers could ultimately benefit from lower mortgage costs because of a lower cost of guaranteeing mortgage credit, the author contends, but the savings per borrower would likely be small. He also notes that increased competition may reduce the franchise value of Fannie Mae and Freddie Mac, in turn possibly increasing risk-taking incentives for these firms. The author concludes that the evolution of this competitive landscape bears close attention as it could have important implications for mortgage markets.

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