| 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.
