Volume 8 | Issue 17
MPF® Advisory Council Members Share their MPF Program Experience
The Mortgage Partnership Finance® (MPF) Program’s unique credit sharing arrangement rewards community lenders for the job they do best — originating and underwriting loans based on the ability of the borrower to repay the loan.
Over the past year, several enhancements were successfully made to the MPF Program, thanks in part to MPF’s Advisory Council. Comprised of 18 mortgage professionals from lenders across the nation that participate in the MPF Program, the council provides a forum to share expertise, experiences, and discussions on the views of real estate lending and market conditions to identify best-in-class solutions for the MPF Program.
Currently, three FHLBNY member representatives sit on the council. Stephen DeRaddo, Executive Vice President, Senior Retail Lending Officer at Lyons National Bank represents the FHLBNY on the Council’s Risk Based Capital sub-committee. Risk based capital is a key issue to our membership and further identifying solutions to the requirement is important. Robert A. Hart, Senior Vice President of Residential Lending at Manasquan Savings Bank is active on the sub-committee for Product Development. He has contributed to the development of a potential new product to further augment the benefits of the MPF product suite; and Anthony Cecchetto, Vice President of Secondary Marketing at OceanFirst Bank had participated in the PFI Mentoring sub-committee but has recently rotated off the Advisory Council. We thank him for his involvement.
Our current council members share their perspective on the MPF Program below and how participation has added value to their institution.
The MPF Program Experience - First Hand
The Competitive Edge in Lending
At Manasquan Savings Bank, the MPF Program allowed us to become competitive in our local marketplace. The higher loan limits offered allow us to provide better rate offerings than local competitors on high balance loans. With no loan level price adjustments or hidden market fees passed down to our borrowers, and since MPF pricing is the same for all sellers into the Program no matter the volume of loans sold, it makes the Program a win-win situation for us and our customers. See the following highlight on high-balance mortgage loans for an example on pricing.
MPF’s risk-sharing partnership model enables us (Lyons National Bank) to compete in our local market — both the FHLBNY and participating members share in the credit risk of loans sold, and members are compensated for providing quality mortgages and sharing in this risk. During the mortgage crisis, when the mortgage market and other secondary market purchasers were in turmoil, the MPF Program remained a viable option for Lyons, which enabled us to originate the largest number and dollar amount of mortgages we have ever done.
Value Added to Your Bottom Line
Manasquan has seen a 47% increase in loan originations from 2011 to 2012. Over that same period, using the MPF Program helped us increase the total dollar amount sold by 76%. The additional income received from our participation in the MPF Program has also provided value. Selling loans to the FHLBNY requires the purchase of FHLBNY stock, as well as taking on a portion of the credit risk of the loans sold. As participants know, the MPF Program pays for sharing in the risk in the form of Credit Enhancement (CE) fees. As a result of our participation, for 2013, Manasquan has received more than $90,000 in dividends and more than $50,000 in CE fee income — a total estimate of over $140,000 in additional income.
Lyons has participated in the MPF Program since 2001 and we’ve amassed more than $325,000 in CE fees over that time. Our participation certainly impacts the bottom line.
Access to the Secondary Market and Level of Service
The MPF Program gave Manasquan Savings Bank access to the secondary market. The service levels we receive are exceptional — similar to the service a customer expects when dealing with a local community bank, we are always able to make contact with an MPF Program representative for assistance.
Lyons National Bank joined the MPF Program in 2001 to diversify our secondary market outlet. When realizing their service exceeded other secondary market purchasers and our expectations, we increased our participation. As a community bank we strive to provide quality customer service and competitive products. The FHLBNY is a committed partner, and we are committed to remain an MPF Program participant.
The FHLBNY thanks our MPF Advisory Council members for their time, effort, and feedback on the many advantages of the MPF Program. Call Tom Doyle at (212) 441-6712 or Heather Gostomski at (212) 441-6701 today for a personalized review of how participation in the MPF Program can benefit your institution.
Do You Originate High-Balance Mortgage Loans?
If you originate loans in high-cost areas, you may find the MPF Program especially beneficial. The Program’s pricing for high-balance loans ($417,000 - $625,500) is the same as conventional conforming loans up to $417,000. In addition, there are no loan-level price adjustments or adverse market fees, unlike other secondary market alternatives. No matter what volume you sell, pricing is identical for all participating members.
The following is an example of the income advantage of selling a high-balance loan to the MPF Program.
- MPF 3-day delivery commitment on 3/3/14: 4.375%
- MPF pricing premium paid to member: $12,387.75 (transferred the same business day the loan is funded)
- Potential annual Servicing Income (25 bps): $1,250.00
- Potential annual Credit Enhancement Fee income: $500.00
In this example, the member has the potential to receive up to $14,137.75 in income this year by selling into the MPF Program.
High Balance Loan eligibility requirements can be found in the MPF Reference Guide: High-Balance Mortgage Loans.
The FHLBNY Dividend — An Added Benefit for Members
On February 14, 2014, the FHLBNY declared a cash dividend for the fourth quarter of 2013 at 4.75% (annualized).
When members take down a delivery commitment to sell a loan into the MPF Program, they are required to purchase activity-based FHLBNY capital stock at 4.5% of the delivery amount. The stock requirement can be viewed as an additional benefit when compared to other investments.
For example, if a member took down a $1,000,000 delivery commitment and bought $45,000 (4.5% of $1,000,000) in B2/Activity-Based capital stock, based on the cash dividend for 2014 (4.75%, annualized), the member would have earned a cash dividend of $2,137.50.
Note: There is no guarantee that the level of future dividends will reflect the level of previous dividend payouts.