| Transaction Type |
The participating financial institution
(PFI) may sell closed loans to its applicable Federal
Home Loan Bank (MPF
Bank).
|
| Process |
The PFI will obtain a master commitment
from the MPF Bank, and will submit loan data to
determine a credit enhancement (CE) equivalent to
a rating agency "AA" loan-level credit
risk. The CE amount for each purchased loan will
be accumulated for its master commitment. A pool-level
credit-enhancement amount will be added to this
total to cover risk concentration.
|
| MPF Bank First-Loss
Account (FLA) |
The MPF Bank's first-loss obligation
will be specified in each master commitment. The
MPF Bank will absorb credit losses for loans in
the master commitment up to the balance of the first-loss
account (FLA).
|
PFI Second-Loss
Credit-Enhancement Obligation |
The sum of the loan level CEs plus
the pool-level credit-enhancement amount for a master
commitment. The PFI will pay credit losses for a
master commitment in excess of the balance of the
FLA, up to the amount of the PFI's credit-enhancement
obligation. The PFI's credit-enhancement obligation
is an undertaking under the terms of the PFI Agreement.
|
Credit Losses in
Excess of the PFI
Credit- Enhancement Obligation |
The MPF Bank will absorb credit losses
in excess of the PFI's credit-enhancement obligation.
|
Credit-Enhancement
Fee |
An amount mutually agreed upon of
the remaining unpaid principal balance, to be paid
monthly to the PFI.
|
| Credit-Enhancement-Obligation
Reset |
Periodically, the PFI's credit-enhancement
obligation required for an "AA" level
of credit risk will be recalculated and, if such
recalculated obligation is lower than the remaining
obligation, the PFI's credit-enhancement obligation
will be reset to the new, lower level.
|
| Other Fees |
In addition to the credit-enhancement
fees, the PFI will receive a servicing fee from
the MPF Bank.
|
| Capital Treatment |
For depository institutions, there
is no leverage capital requirement. The PFI's credit-enhancement
obligation will receive, for risk-based capital
purposes, recourse treatment resulting in a capital
requirement equal to 100 percent of the PFI's credit-enhancement
obligation, but not to exceed 4.0 percent of the
aggregate original balance of the loans in the master
commitment. |
"Mortgage Partnership Finance"
and "MPF" are registered trademarks of the Federal
Home Loan Bank of Chicago.
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