The Mortgage Partnership Finance ® Program

1. The Mortgage Partnership Finance® Program Annual Fall Conference November 17-18, 2003

2. What is the Mortgage Partnership Finance Program? • FHLB alternative to funding fixed rate mortgage loans • Risk sharing program between member banks and FHLB • Innovative, competitive and efficient funding source for member banks.

3. What is the MPF Value Proposition? • Enhance mortgage profitability • Streamline mortgage processes • Improve customer service • Retain customer relationship

4. MPF Program Income Sources • Competitive Price Paid Upfront • Credit Enhancement Fee • Servicing Fee or Servicing Release Premium • Dividend on Home Loan Bank Stock

5. MPF Market Acceptance (12 month period ending 9-30-03) • MPF Assets up 136% to $81.8 billion • MPF 3rd QTR 03 fundings $23.8 billion • MPF membership up 66% • 890,000 families served since 1997 • 0.11% 90 day delinquency rate

6. FHLB DM Market Acceptance(12 month period ending 9-30-03) • Doubled number of participating lenders • Fourfold increase in community lender assets acquired. • Tenfold increase in community lender master commitments. • $14.5 billion MPF Assets

7. Objectives I. MPF Basics II. MPF Credit Enhancement III. MPF Credit Products IV. MPF Economic Benefit

8. I. MPF Program Basics • The MPF Partnership • Mortgage Credit Risk • Interest Rate Risk

9. The MPF Partnership Member PFI Secondary Seller Portfolio Lender MPF Bank Home Loan Bank of Des Moines MPF Provider Home Loan Bank of Chicago

10. MPF Program Basics The MPF program is a partnership program designed to share risk between the Home Loan Bank and our members.

11. MPF Program Basics The MPF program allows mortgage loan credit risk to be shared between the Home Loan Bank and the Participating Financial Institution (PFI).

12. MPF Program Basics The MPF Program considers the competitive advantage of the participants. The Home Loan Bank assumes interest rate and prepayment risk, the PFI maintains the customer relationship.

13. II. Credit Enhancement • Credit Enhancement Fee • Credit Enhancement Obligation • Credit Enhancement Structure

14. Credit Enhancement Fee • Paid to members for assuming credit risk • Determined by the quality of the loans at pool level • Fee paid monthly over the life of the loans

15. Credit Enhancement Fee • 10.75 basis points or 13.75 basis points based on the amount of credit risk • Based on the outstanding loan balances • Example: $10,000,000 times 10.75 basis points divided by 12 equals $895 per month

16. Credit Enhancement Obligation • Credit risk is determined on a loan level basis by using loan characteristics • Standard & Poor’s LEVELS® model assigns risk score • Weighted average credit enhancement at the pool level defines the maximum credit risk exposure • Credit quality evaluation is automated through the eMPF® website

17. Credit Enhancement Obligation • PFI Credit Enhancement is collateralized • Off balance sheet contingent liability • Recourse treatment resulting in risk-based capital charge is 8% or 100% of Credit Enhancement Obligation

18. Credit Enhancement Structure • Loan Loss Absorption • First Loss Account • PFI Credit Enhancement • Examples

19. Loan Loss Absorption Home Owner Equity Loss Progression PFI Primary MI First Loss Account Credit Enhancement “AA” Rating Home Loan Bank

20. First Loss Account • Established on behalf of member to reduce credit risk • Provides protection for normal and expected losses • Contingent liability account established by MPF Bank • Account is the liability of MPF Bank with respect to realized losses

21. Credit Absorption Example Assume: $10,000,000 Pool, 2.50% Total CE Required, 1.00% First Loss Account Total CE Required: $250,000 FLA: $100,000 PFI CE Obligation: $150,000

22. Credit Absorption Example

23. III. MPF Credit Products

24. III. MPF Credit Products CE Fee for 100/125 and Plus is based on Credit Performance. In addition the Plus requires a Supplemental Mortgage Insurance Policy.

25. IV. MPF Economic Benefit • Value of Credit Enhancement Fee • Best Execution Comparison • Internal rate of return on Risk Based Capital

26. Credit Enhancement Fee • Based on the outstanding loan balances • 10.75 basis points or 13.75 basis points • Example: $10,000,000 times 10.75 basis points divided by 12 equals $895.83 per month

27. CEF: 10.75 bps PSA: 250 Reinvestment Rate: 6% Mortgage losses: 0.2% Credit Enhancement Fee Present Value Assumptions

28. Execution ComparisonMPF vs. Secondary Market

29. Seamless Loan Process • Utilize existing origination and loan processing procedures • Minimal changes to the loan funding and selling process • Easy delivery and loan purchase methods • Standard servicing requirements with minimal changes

30. The MPF Program is a value added product for Home Loan Bank members

31. Thank You!?? Questions ?? 031027

32. Contact Information • FHLB Des Moines MPF • Steve Schuchmann 800.544.3452 x1007 • Bill Venema 800.544.3452 x1410 • Donna Iddins 800.544.3452 x1043 • Help Desk: 877.463.6673 (8:30-4:30 CST) • Email: mpf-help@fhlbc.com • Website: www.fhlb-mpf.com

33. Glossary of Terms Credit Enhancement (CE) The amount of support that a loan needs to qualify for an AA rated security. Credit Enhancement Obligation (CEO) The maximum amount of risk the PFI is responsible for which is the credit enhancement less the first loss account Credit Enhancement Fee (CEF) Fee paid to PFIs for sharing the credit risk

34. Glossary of Terms MC: Master Commitment MPF: Mortgage Partnership Finance MPF Bank: Home Loan Bank of Des Moines MPF Provider: Home Loan Bank of Chicago PFI: Participating Financial Institution