By Ashish Tripathy
The partnership between credit unions and the Federal Home Loan Bank (FHLB) System began in 1989 when Congress allowed credit unions to be members of the FHLB System. Since then 1,397 credit unions have become members of the FHLB System and have realized numerous benefits from access to reliable and stable liquidity, low-cost balance-sheet funding, secondary market mortgage financing, and community investment grant programs.
There are 11 Federal Home Loan Banks (FHLBanks) that comprise the FHLB System and much like credit unions, they are all member-owned cooperatives. This makes for many similarities in the service culture, specifically, credit union members are treated by FHLBank employees as both customers and owners, much like credit union employees treat their members as customers and long-term shareholders. The housing and real-estate finance products provided by the FHLBanks are an important tool used by credit unions to serve their members and communities in a sustainable long-term relationship.
Reliable and Low-Cost Funding
The FHLBanks make loans with maturities from one day to 10 years or longer to their member financial institutions called "advances," which are flexible structures to meet the unique needs of credit union members and can be used to:
- Fund loan growth with cash flow schedules and maturities to match auto, consumer, and mortgage loans;
- Provide a strong and reliable back-up source of liquidity;
- Manage the balance sheet's duration gap and other asset/liability strategies via fixed, floating or other structured advances.
Access to the Secondary Mortgage Market Financing
The MPF Program is another important tool available to members:
- It provides an attractive financing alternative for fixed-rate mortgage loans
- Participating members sell the loan to their FHLBank and get same day cash
- Members can retain the servicing rights and their important customer relationships, while earning servicing fee income
- The lack of loan level pricing adjustments makes it easy for credit unions to offer attractive loan rates
- Additional fee income is earned by sharing a small portion of the credit risk of the loan
Contact your FHLBank to get more details on how the MPF Program can help you grow your mortgage origination business. MPF products provide solutions to help increase your mortgage banking fee income and better serve your members through conventional, government and jumbo loans with servicing retained as well as released options, and down payment assistance programs. Attractive funding for your mortgage held-for-sale pipeline is also available.
FHLBanks Help Members Support Their Communities
The FHLBanks provide financing and direct funding tools that support affordable housing and local community lending initiatives of our members. By using our products individually or in combination, our members and their community partners can contribute to the quality of life in the communities they serve.
In addition, members can leverage letters of credit and other off-balance sheet products as well as educational opportunities like webinars and conferences. The FHLBanks partner with members in a variety of ways to provide customized solutions. To learn more contact your FHLBank or visit www.fhlbanks.com.
Ashish Tripathy, SVP, Member Strategy and Solutions, Federal Home Loan Bank of Chicago