MPF® Program
How the MPF® Program Works
A key insight of the MPF® Program is to view a fixed-rate mortgage as a bundle of risks which can be split into its component parts. Each risk can be assigned to the institution which is best situated to manage it. For example, experience has demonstrated that local lenders know their customers better than any agency based in Washington, D.C. The MPF® Program recognizes this fact and assigns the mortgage lender the primary responsibility for managing the credit risk (the risk that the homebuyer will be unable to repay the loan) of the loans it originates. Similarly, the local lender is better situated to handle all functions involving the customer relationship, which it does under the MPF® Program.
By contrast, the Federal Home Loan Banks of New York are responsible in an MPF® transaction for managing the interest rate risk, prepayment risk and liquidity risk of the fixed-rate mortgages because of their expertise at properly hedging such interest rate risks and their ability as a GSE to raise low-cost, long-term funds in the global capital markets. The FHLBNY provides the funding for MPF® loans (the liquidity risk) and manages their interest rate and prepayment risks of the loans held in their portfolio.
Click on the links below to read more.
Allocation of Risks
Credit Enhancement
MPF® Program Flow Chart
Closed Loans
Risk Based Capital
Dispersion of Credit Risk
Allocation of Credit Losses/Steps to Recover