| 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.
