UPDATE 2-FHLB Chicago to stop mortgage-buying program

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NEW YORK, April 23 (Reuters) - The Federal Home Loan Bank of Chicago on Wednesday said it would halt its program of purchasing mortgage loans, citing onerous costs.

The FHLB of Chicago will no longer make or renew commitments under the program after July 31, Matthew Feldman, acting president of the bank, said on the company's website.

The bank in the past decade has been criticized for lax interest-rate risk management, in part due to the growth of the program known as the Mortgage Partnership Finance, or MPF, analysts said. The bank launched the program in the late 1990s to share the risk of managing mortgages with lenders.

"This is a program that's been under significant criticism, or some would say attack, from the Federal Housing Finance Board," said Bert Ely, a banking consultant. The housing finance board regulates the 12 Federal Home Loan Banks.

"It's more a matter of managing the risk" on the MPF portfolio, he added.

Mortgage Partnership Finance was once seen as competition for the largest mortgage buyers, Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research), which "have never liked the program," Ely said.

But growth has waned since 2004 as lenders sought more profitable ways to push the assets off their balance sheets, said Jim Vogel, a strategist at FTN Financial Capital Markets.

The Chicago FHLB held $34.6 billion in MPF mortgages on its balance sheet, net of an allowance for loan losses, at the end of 2007. The total is down from nearly $47 billion in 2004.