A Flow Chart.
The Federal Home Loan Bank sends credit enhancement fees and loan funds to the institution. The institution sends loan funds to (or for the benefit of) the borrower. The borrower pays origination fees and sends principal and interest (P&I) payments to the institution. The institution sends P&I payments (net of the servicing fee) - some of which fund the First Loss Account - and second loss credit enhancement payments - if loan losses exceed the First Loss Account - to the Federal Home Loan Bank. Please note that these cash flows do not occur simultaneously, but take place over the life of the mortgage loans.