| Transaction Type |
The participating financial institution
(PFI) will sell closed loans in bulk 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 obtain a credit enhancement (CE) equivalent
to rating agency "AA" loan-level credit
risk. The CE amount for each purchased loan will
be accumulated for its master commitment. A pool-level
CE amount will be added to this total to cover pool
risk. |
| MPF Bank First-Loss
Account (FLA) |
100 bps (1.0 percent) of the principal
amount of the loans funded under a master commitment.
Loan losses (after MI) for each master commitment
up to this amount will be applied against the FLA.
|
PFI Second-Loss
Credit-Enhancement Obligation |
The sum of the loan-level CE amount
plus the pool-level CE amount for the master commitment
less the FLA. The PFI will pay loan losses for the
master commitment in excess of the FLA, up to the
total of the CE obligation. The PFI's CE 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 of the loans
in a master commitment, to be paid monthly to the
PFI. Credit-enhancement fees will be adjusted to
reflect credit performance, being reduced by an
amount equivalent to credit losses, up to the maximum
of the FLA. If credit losses exceed the credit-enhancement
fee due in any period, such excess will be carried
forward and applied against future credit-enhancement
fees.
|
| Other Fees |
In addition to credit-enhancement
fees, the PFI will receive a servicing fee from
the MPF Bank.
|
| Credit-Enhancement-Obligation
Reset |
Periodically, the PFI's credit-enhancement
obligation required for a "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.
|
| 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
unpaid principal 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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