By John Stocchetti
Credit unions really know their members. They’re based in the community where members reside and shape their lives. Sometimes I think of our country as a series of communities all joined together—the connections within and across communities making growth possible.
The value your credit union provides multiplies as you are able to meet the needs and services members request such as greater access to mortgage loans and participation in community development—a meaningful, cooperative partnership.
A similar cooperative partnership exists between Federal Home Loan Banks and their member institutions. FHLBanks are owned by our member institutions and operated on their behalf in all 11 districts across our country. Members include credit unions, banks, thrifts, and insurance companies. At the end of 2014, credit unions accounted for 17% of the entire FHLBank System membership. Members are required to purchase stock to join the FHLBanks, and they purchase additional stock to capitalize their borrowings. This allows us to remain safely and soundly capitalized at all points through the credit cycle.
FHLBanks serve as financial intermediaries. We channel funding from the global capital markets to bring value to our members through access to low-cost funding, grant programs to support local housing initiatives, products to diminish interest rate risk and support transactions, and competitive secondary market mortgage products.
Even the Mortgage Programs are Cooperatives
Mortgage programs are cooperative in nature. Since the first programs began nearly 20 years ago, all of the FHLBanks have had some involvement in mortgages—either through the Mortgage Partnership Finance (MPF) Program or Mortgage Purchase Program (MPP).
The MPF Program allows participating member institutions, as lenders, to originate, sell, and service (if they choose) fixed-rate residential mortgage loans. With certain products, the FHLBanks manage the liquidity, interest rate, and prepayment risks of the loans while the lender manages the primary credit risk of the loans. Our unique risk-sharing structure allows members to benefit from the credit performance of their loans, by earning fee income.
Facilitates Competition
The MPF Program levels the playing field for small to mid-size members by providing them access to the secondary mortgage market and enhancing their ability to compete with larger institutions. The MPF Program has performed well because of this cooperative partnership and because local community lenders understand their customers.
Through the FHLBanks, mortgage liquidity comes in various forms. There is liquidity in the participating member’s ability to receive financing through our advance facilities (borrowings) and with the mortgage programs, in the opportunity to sell the asset off its balance sheet, reducing future risk management requirements.
Nothing makes me feel more excited than walking into a member’s office and having the president say, “If it weren’t for the MPF Program, I really couldn’t compete in this market. I couldn’t be in this business without you.” To me, as a guy raised by Old-World Italians where homeownership was really important, it’s tremendously rewarding to help people achieve this dream.
John Stocchetti is Executive Vice President at the Federal Home Loan Bank of Chicago and the MPF Program. For information: fhlbmpf.com.