A "backdoor" coup that would have effectively killed the Federal Home Loan Banks' Mortgage Partnership Finance program met with failure earlier this month. But it could be resurrected by opponents of the popular program that its backers say helps keep mortgage rates low.

An amendment to the Senate's HUD/VA appropriations bill that would have imposed a $15 billion cap on the amount of loans eligible for purchase under the popular MPF program was never offered during a markup of the appropriations bill, largely because of the efforts of lender trade groups.

"We dodged the bullet," said Raymond Christian, president of the Federal Home Loan Bank of Atlanta. "But we shouldn't have to fight in a sideshow behind closed doors in Washington. We should have the opportunity to fight the good fight in the marketplace. Let competition determine who's going to be the victor."

The MPF program gives financial institutions wishing to sell their mortgages in the secondary market a third alternative to either Fannie Mae or Freddie Mac, an alternative its supporters say is less because they don't have to pay costly guarantee fees to the two giant financial institutions, which dominate the after market.

Also, by providing commercial banks and savings institutions with another outlet for their mortgages, the amount of capital available for more loans is increased, and that leads to better rates and terms for borrowers.

Earlier this year, the Federal Housing Finance Board, which oversees the Home Loan Bank System, gave a green light to what had been an experimental program by lifting the ceiling on MPF purchases. As a pilot program, purchases were limited to $9 billion.

Since then, nine of the 12 regional banks -- and soon to be 10 which buy fixed-rate loans from their member institutions have passed the $13 billion mark in MPF purchases along with $93 billion in master commitments. So the rider planned by Sen. Christopher Bond, R-Mo., who chairs the Senate HUD/VA Appropriations Subcommittee, would have stopped the program in its tracks.

Senate Banking Committee chairman Phil Gramm, R., Texas, expressed disappointed that Sen. Bond did not offer the cap amendment, and it appears that Sen. Gramm is looking for another legislative vehicle.

Christian of the Atlanta bank said Sen. Bond was planning to offer the amendment on behalf of "a GSE." He refused to identify which GSE because he can't prove which one it was. However, other sources indicate it was Fannie Mae.

But Sen. Bond never offered the rider because nine trade association wrote the entire committee urging members to reject any attempt to impose another ceiling.

Christian, who was chairman of the Federal Home Loan Bank of Pittsburgh before moving to Atlanta a year ago, questioned whether Fannie Mae and Freddie Mac are truly interested in competition or are simply trying to hold on to their share of the mortgage pie.

In their dealings with FM Watch, the group that believes the two government sponsored enterprises have gone beyond their charters and wants to reign them in, Fannie and Freddie claim that competition is good for the mortgage market, he explained. At the same time, they want to stifle competition from the home loan bank system.

"But competition can't be good in one context and not in another," he said. "They can't have it both ways."

Alex Pollock, president of the Chicago bank, which initiated the MPF program in 1997, agreed. "The future of MPF should be played out in the marketplace of GSE competition rather than in attempts to preserve duopoly power through political means."

The nine trade groups which rallied to support the program include: the American Bankers Association, America's Community Bankers, American League of Financial Institutions, Consumer Bankers Association, Consumer Mortgage Coalition, Council of Federal Home Loan Banks, Financial Services Roundtable, Independent Community Bankers of America, and the National Black Chamber of Commerce.