The Federal Home Loan Bank of Chicago is moving closer to rolling out its mortgage conduit program for jumbo loans and a separate conduit for Ginnie Mae-eligible loans.

Both conduits are currently in a "pilot mode," according to Chicago Home Loan Bank spokeswoman Melissa Warden. "We are looking for a full roll-out at the end of the first quarter or early second quarter," she told National Mortgage News.

The conduits represent an expansion of Chicago's Mortgage Partnership Finance program. Nine other Home Loan banks participate in the program, which the Chicago Home Loan Bank developed in the 1990s as a competitive alternative to Fannie Mae and Freddie Mac.

The Chicago Home Loan Bank has teamed up with Redwood Trust to provide this conduit for jumbos with loan balances of $417,000 to $729,750. It has dubbed the jumbo program MPF Direct.

The Chicago Home Loan Bank will purchase jumbo loans from member institutions and then sell them to Redwood, which will securitize them into the private-label securities market.

Redwood Trust Managing Director Mike McMahon said that roughly a dozen Illinois and Wisconsin community banks and credit unions are participating in the pilot program

"We are in the process of buying loans and testing the process systems," he said. "We will continue to work with the [Chicago bank] to identify additional sellers while we are in the pilot phase and we look forward to adding those sellers once we complete the pilot phase," he said.

Other Home Loan banks that that want to participate in the MPF Direct program must get Federal Housing Finance Agency approval.

Redwood Trust is a real estate investment trust based in Mill Valley, Calif., that buys and securitizes prime jumbo loans.

The Ginnie Mae conduit will allow Home Loan bank members to sell their Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans into Ginnie Mae pools. The Chicago Home Loan Bank will serve as the aggregator for this so-called Government Mortgage Partnership Finance program.

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