BEWARE THE PERFECT STORM - FHLBank Topeka

More documents

Recommendations

Info

COMMON MISCONCEPTIONS WHEN SELLING MORTGAGES CONTINUED FROM PAGE 7 MORTGAGE OPERATIONS OUR CLIENTS WITH SMALLER PORTFOLIOS EFFICIENTLY SERVICE LOANS BY KEEPING IT SIMPLE – THEY SERVICE FOR ONE OR TWO INVESTORS; USE THE SAME REMIT- TANCE OPTION; MAXIMIZE THE NUMBER OF BORROWERS WHO PAY ELECTRONICALLY; ORIGINATE HIGH-QUALITY LOANS; AND DETERMINE IF ESCROWING THE LOAN VOLUNTARILY MAKES SENSE IN THE INSTITUTION’S GEOGRAPHIC AREA. 4. SELLING THE SERVICING RIGHTS PROVIDES FOR A SIMPLE LOAN OFFICER COMMISSION STRUCTURE. FALSE Many institutions include the price received for selling the servicing rights into the loan officer commission calculation. The same can be done with servicing rights that are retained. We have clients who simply add the capitalized servicing asset to the sales price in order to calculate commissions. We provide our clients with a schedule of booking rates that allows them to calculate the value of the retained servicing right based on the loan size, loan term and whether or not the loan is escrowed. They use the schedule to determine the amount to record for the mortgage servicing right for their gain on sale and commission calculations. 5. AN INSTITUTION CANNOT SELL LOANS SERVICING RELEASED TO FHLBANK TOPEKA. FALSE Although the majority of loans sold to FHLBank Topeka are sold servicing retained, an institution can sell its loan servicing released under the MPF Program. FHLBank Topeka has a contract with Colonial National Mortgage to purchase servicing rights for loans sold into the MPF Program. We note that Colonial’s prices are often less than other servicing released bidders in the marketplace. We believe this is due in part to their commitment under the program to not cross-sell. Institutions that elect to sell to the MPF Program servicing released do not give up their credit enhancement position. They continue to receive credit enhancement fees from FHLBank Topeka and continue to be responsible for their credit enhancement obligation. IMPLEMENTING THE MPF PROGRAM. WONDERING HOW TO GET STARTED First, we recommend that an institution compare the economics of the program to other alternatives. We have found the MPF Program to generally be more favorable. Second, we recommend that an institution consider the accounting and regulatory requirements of the program. Wilary Winn can provide a complimentary Accounting and Regulatory Guidance manual designed to help you with implementation. Third, we recommend that you develop analytics to provide you with the proper amounts to record for the mortgage servicing rights assets, credit enhancement fees receivable and credit enhancement obligation liabilities. In this regard, we are pleased to report that we are working to create a pilot program under which FHLBank Topeka will provide us directly with data on loans sold by a PFI to the Bank (e.g. loan amount, term, interest rate). We will in turn combine this data with information we obtain from the marketplace (e.g. expected prepayment speeds, market servicing costs, market required discount rates) and determine the value of the assets and liabilities at the loan level using our proprietary cash flow engine. We will then provide an institution that elects to participate in the program with a monthly (or quarterly depending on loan volume) MPF portfolio value report, the necessary accounting entries to record the loan sales and a file that calculates the ongoing monthly amortization at the loan level. It goes without saying, but we will say it anyway to the people responsible for the accounting: Our calculations and reports meet all of the requirements of FAS 140, FAS 156, and FAS 157. Wilary Winn LLC President and co-founder Douglas Winn has more than 25 years of executive level financial experience and has served as a management consultant for the last nine. His areas of expertise include business planning, treasury management, residential mortgage lending and asset-backed securitization. Mr. Winn can be reached at 651.224.1200. Visit Wilary Winn’s Web site at www.wilwinn.com. 8 FHLBank Focus | Winter 2007
BACK TO COMMON SENSE LENDING If you’ve been considering participating in the Mortgage Partnership Finance® (MPF®) Program offered by FHLBank Topeka as a secondary market alternative, now could be the best time. The MPF Program supports the common-sense residential mortgage lending that you, our members, provide in your communities. WHY THE MPF® PROGRAM MAKES SENSE Fannie Mae and Freddie Mac’s purchase programs require that they be compensated upfront for forecasted credit risk. Recently, both companies indicated they will increase their upfront loss compensation charges as a result of the turbulent mortgage market. With the MPF Program, we don’t charge a guaranty or delivery fee, nor do we adjust price sheets based on riskier loan characteristics. It simply doesn’t make sense to charge our customers an upfront fee for losses that may or may not occur. Instead, we ask that our members share in Unlike repos, FHLBank’s short-term advances don’t require a specific security to be pledged against them, but short-term advances are priced competitively to repos. We refer to these short-term advances as repos because their rate is competitive with repos and brokered CDs. However, be careful when making comparisons between advances and other funding sources; the varying day basis and interest payment frequencies make it difficult to draw an accurate conclusion. FHLBank’s Member Services staff is available to assist you in making an apples-to-apples WITH THE MPF® PROGRAM, WE DON’T CHARGE A GUARANTY OR DELIVERY FEE, NOR DO WE ADJUST PRICE SHEETS BASED ON RISKIER LOAN CHARACTERISTICS. IT SIMPLY DOESN’T MAKE SENSE TO CHARGE OUR CUSTOMERS AN UPFRONT FEE FOR LOSSES THAT MAY OR MAY NOT OCCUR. a portion of a credit loss only if it occurs. And for taking on the pre-determined credit risk, we pay YOU an income stream for the life of the loan! Our members are financial institutions with historically low residential loan losses. So why pay an upfront fee to an investor for a loss that most likely won’t happen We know our members … our members know their customers. With the MPF Program, we focus on providing what is best for our Q & A FREQUENTLY ASKED QUESTION: rate comparison, even if FHLBank advance rates don’t come out on top. Did you also know that FHLBank shortterm advances are available in terms ranging from 3 to 93 days in maturity Rates are listed on Members Only and include standard maturities of 1-, 2-, 3-week and 1-, 2-, 3-month. However, they are also available for any term in between. Short-term advance rates are interpolated in order to quote off-standard maturity dates. The process of interpolation assigns a rate value to each day’s increase in term. For customers and the communities we serve. If you’re currently selling mortgage loans to other investors and would like another option, consider the MPF Program. We offer competitive upfront pricing and the potential for a continued stream of credit enhancement fees. To start selling your fixed-rate, first mortgage loans into the MPF Program, contact us today at 866.571.8171. For more information, visit our Web site at www.fhlbtopeka.com. WHY ARE FHLBANK SHORT-TERM ADVANCES CALLED REPOS example, when the 2- and 3-week rates are 5.00% and 5.07%, respectively, a 17-day advance would receive a rate of 5.03%. In this example, there is a 1-basis-point increase in the advance rate per day of increase in term (17 days is three more than 14 days, so the rate would be 3 basis points higher). The next time your institution needs to compare advance rates to repos or brokered deposits, or needs a quote for a very specific advance term, give us a call in Member Services at 800.809.2733. www.fhlbtopeka.com 9 FHLBANK PRODUCT NEWS
Page 1 and 2: WINTER 2007 ocus fTHE RIGHT RESOURC
Page 3 and 4: THE PERFECT STORM CONTINUED FROM CO
Page 5 and 6: www.fhlbtopeka.com 5
Page 7: THE MPF PROGRAM IS BEST UNDERSTOOD
Page 11 and 12: MORE ON THE VILLAGES AND FHLBANK TO
Page 13 and 14: FHLBANK PRODUCT NEWS AT A GLANCE M
Page 15 and 16: her new home, “I feel good, I sle
Page 17 and 18: BANKERS ATTEND MEETING IN OKLAHOMA,
Page 19 and 20: Nebraska’s first district Congres

BEWARE THE PERFECT STORM - FHLBank Topeka

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?