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FINANCE BOARD APPROVES SEATTLE FHLBANK PROPOSAL

TO PURCHASE MORTGAGES FOR RENT-TO-OWN PROGRAMS

The Federal Housing Finance Board today approved a proposal from the Federal Home Loan Bank of Seattle to initiate a pilot program that would foster homeownership by facilitating the financing of "rent-to-own" mortgages.

Under the pilot program, the FHLBank of Seattle will purchase up to $25 million in Federal Housing Administration (FHA)-insured loans originated by its members to affordable housing developers and local government agencies. The loans will finance "rent-to-own" programs for low-income and moderate-income households. By offering reduced costs, higher servicing fees and other incentives, the program is designed to attract more lending for lease-to-own programs, which heretofore have generated little interest from lenders.

"This pilot program is a new and innovative way for the FHLBank of Seattle to carry out its housing finance mission, at minimal risk," said Finance Board Chairman Bruce A. Morrison. "It promotes lending for an underserved segment of the housing market and enhances the cooperative nature of the System by increasing the liquidity and marketability of mortgages held by its member institutions."

In the "rent-to-own" program, low- and moderate-income households that lack the funds for a downpayment on a home have a portion of each lease payment set aside until the FHA-required three percent for downpayment is accumulated. The household then assumes the mortgage, which is insured against default by the FHA, minimizing the risk to the lender.

Normally, members and nonmember borrowers of the Seattle FHLBank that are FHA-approved lenders would accumulate pools of these mortgages for packaging into GNMA (Ginnie Mae) securities. The FHLBank of Seattle will provide these lenders with an alternative by immediately buying the loans, saving the lender from having to hold the loans until a sufficient quantity have been accumulated for Ginnie Mae pooling, providing favorable pricing, and paying a higher servicing fee than that paid by Ginnie Mae.

In addition, the pilot will enable members of the Seattle FHLBank to transact CRA-eligible lending at more favorable rates and, by providing a secondary market for these loans, also will enhance the flow of credit to an underserved segment of the mortgage market.

"We have been encouraging the FHLBanks and their members to 'knock on the door' with creative programs that meet the System's mission, and now four pilot programs have been approved," said Chairman Morrison. "They are all unique, but they have a common thread -- they illustrate how the FHLBank System can increase the availability of funding for housing finance and community investment, especially where that financing is not otherwise available."

Details of the proposal were published in the Federal Register on August 8, with a 30-day comment period. The pilot program cannot begin until the Finance Board's Office of Supervision completes a pre-implementation examination to ensure that the Seattle FHLBank has established proper policies, procedures and controls.

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