With many smaller banks either failing or struggling to continue operations due to increased costs of doing business, Comptroller of the Currency Thomas Curry recently spoke at the Federal Home Loan Bank of Chicago about some of the latest innovations brought about to help community banks get back in the lending game.
With many of the smaller financial institutions not generating large enough volumes of mortgage loan pools to sell to Ginnie Mae for a government guarantee, Curry explained to the audience how the Chicago FHLB can act as the Ginnie Mae mortgage-backed security issuer. Through the Mortgage Partnership Finance Government Mortgage-Backed Securities program, lenders deliver government-guaranteed or government-insured home loans to the Chicago FHLB.
The option of using the Chicago FHLB as the Ginnie Mae MBS issuer will be especially attractive to low-volume lenders, Curry said, because it will eliminate the costs and barriers community banks would face with becoming Ginnie Mae issuers themselves.
"By taking on this role, the Chicago FHLB provides liquidity, a reliable secondary market conduit, and operational support to participating banks," Curry said. "This program can put community lenders in a better position to offer competitive mortgage products, and it confers a number of advantages on participating institutions, including competitive pricing and the certainty of funding on closing day."
Both the banks and the consumers win in this case, Curry said.
"It confers obvious advantages on small institutions that want to remain competitive in an important product line, and it helps ordinary people achieve the American dream of homeownership," Curry said. "It also exemplifies the creative spirit that has long made the American financial system such a powerful engine of economic growth."
Part of the OCC's focus is on helping community banks and thrifts serve their customers while reducing the cost of doing business, Curry said. One example is a paper published by the OCC back in January titled "An Opportunity for Community Banks: Working Together Collaboratively," which describes ways that community banks can pool their resources to obtain cost efficiency and at the same time leverage specialized expertise. When community banks collaborate in this manner, it allows the banks to cut costs or serve customers they might not otherwise be able to serve, Curry said.
"For example, community banks can exchange ideas and information, share back office operations or jointly purchase materials or services," Curry said. "In one case, a group of banks pooled their resources to finance community development activities through multi-bank community development corporations, loan pools, and loan consortia. In another, several smaller institutions formed an alliance through a loan participation agreement to bid on larger loan projects in competition with larger financial institutions."