Redwood Trust and the Federal Home Loan Bank of Chicago are revving up a program to buy and securitize jumbo loans and looking for signs that other FHLBs will participate.
"We are currently working with the Federal Home Loan Bank of Chicago to identify early participants and working through operations," said Martin Hughes, the chief executive of Redwood, in a conference call on the company's second quarter earnings. "We expect to begin acquiring loans from this [jumbo] program in the fourth quarter."
So far, it appears some of the Home Loan banks are receptive, but most are being coy about their intentions and taking a wait and see approach. The Atlanta Home Loan Bank said Friday it is "actively exploring" the jumbo program, while the Topeka and New York banks said they are monitoring it closely.
At issue is the ability of the Home Loan Banks to move mortgages off their balance sheet, a problem that has hampered the Mortgage Partnership Finance program in the past.
Under the pilot program, which received regulatory approval in June, the Chicago bank will purchase jumbo loans from member institutions and then sell it to Redwood, which will securitize them and sell them into the private-label mortgage market.
The Mill Valley, Calif.-based real estate investment trust is looking to buy prime jumbo loans with balances between $417,000 to $729,750.
If the pilot program is successful and receives final approval by the Federal Housing Finance Agency, the other nine Home Loan Banks that participate through the MPF program could elect to participate in the new jumbo program, dubbed MPF Direct.
To date, however, only the Chicago bank has signed on.
Dan Hess, a senior vice president for the Topeka Home Loan Bank said it is "supportive of this product; however we haven't announced an intent to offer the product to our members.
"We are assessing the needs of our members and the market opportunity in the Tenth District," said Hess. "We also are developing a better understanding of the pricing and execution."
Connie Waks, a spokeswoman for the Seattle Home Loan Bank, said it was "pleased to see this enhancement to the program, and we will be watching closely as the Chicago FHLBank and Redwood implement the offering to evaluate its potential benefits for our members."
The Seattle regional bank currently uses the MPF Xtra program, which the Chicago Home Loan Bank runs as a conduit for selling conventional loans to Fannie Mae.
The Atlanta bank said that it was focused on implementing the Fannie-based MPF Xtra program, calling it a "strong product offering." But it was clearly keeping an eye on the MPF Direct program for jumbo loans.
"We are actively exploring each opportunity that benefits our shareholders including the jumbo program," said Sharon Cook, a spokeswoman for the bank.
Other Home Loan Banks appeared more circumspect in their plans.
"The Federal Home Loan Bank of Boston is in the process of analyzing it," said spokesman Mark Zelemyer.
The New York Home Loan bank said it is also monitoring the new jumbo program while the San Francisco bank declined to comment.