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Positive progress for housing development

CHICAGO - A new secondary source of funds for mortgages here has bought its first American Indian loans.

The Federal Home Loan Bank of Chicago, one of a dozen district banks around the country that comprise the Federal Home Loan Bank System, has bought three Department of Housing and Urban Development section 184 guaranteed American Indian mortgage loans. It is the first of the 12 FHLBs to buy section 184s.

FHLB-Chicago bought the loans from Chippewa Valley Bank of Winter, Wis., which is within its two-state district, which includes Illinois and Wisconsin. Total value of the three fixed-rate mortgages is $217,248. The loans are 100 percent guaranteed by HUD.

The loans went to members of the Bad River Band of Lake Superior Chippewa Indians and the Lac Courte Oreilles tribe. At the announcement of the deal in Chicago were Terri Verville and Delores Martin from the Bad River Housing Commission, and Lorene Wielgot and Brian Bisonette of the Lac Courte Oreille tribe. Alex Pollock, chief executive of the Federal Home Loan Bank of Chicago, and Michael Liu, HUD Assistant Secretary of Public and Indian Housing, represented their institutions.

Why would a bank want to sell off a risk-free loan like a HUD 184? Because when it does, it receives money from the FHLB-Chicago that it can then turn around and re-lend to other borrowers. Secondary mortgage markets, therefore, are important sources of liquidity for Indian mortgages, as well as any other kind, making deals like this one significant beyond the scope of the three loans involved.

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The Chicago district bank, which has 884 lenders within its membership, will hold the loans in its portfolio, where it hopes to earn a profit on the difference between what it receives from the homeowners and what it has to pay outside sources for money. It has subcontracted the servicing (collection and crediting of money, escrow and tax payments) to Jackson County Bank, Black River Falls, Wis.

Although these loans were bought for its own portfolio from banks within its own district, the FHLB-Chicago also runs a nationwide mortgage-buying program called MPF, or Mortgage Partnership Finance. The district bank did not reply to a question on whether that program will be used to buy HUD 184s.

The Federal Home Loan Banks are not the only secondary market for the HUD 184, which has been underused since coming online in 1995. They have also been bought by Fannie Mae and Freddie Mac, the big quasi-public mortgage agencies. They have also been packaged into Government National Mortgage Association securities. In this case, the investors that buy Ginnie Maes provide the secondary market liquidity.

In all, there have been 1,434 HUD 184s guaranteed by the federal government, with a dollar value of $141.3 million, for an average loan size of just a fraction under $100,000 apiece. The loans can be made to individual Indians, tribes or Indian Housing Authorities, and now can be used for refinancing, rehabs, and new home construction as well as existing home sales.

HUD has a second lending program, Title VI, 95 percent guaranteed by the government, generally used for big project loans like the one taken out for $50 million by the Cherokee Tribe of Oklahoma to build about 500 homes for tribal members. Title VI loans also have a secondary market, with sales to Fannie Mae and a $100 million commitment from the Federal Home Loan Bank of Seattle.

Mr. Liu, a former employee of the FHLB-Chicago, told the National American Indian Housing Council in a recent speech that he is hoping to expand the HUD 184 to include Indians living beyond reservation boundaries to help take up some of the hundreds of millions of unused lending authority the HUD 184 has (as does the Title VI program).