Making Mortgages Your New Niche

last updated on Friday, July 19, 2019 in Mortgage Partnership Finance

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Farmers State Bank was organized and founded in 1878. Headquartered in Cameron, Missouri, Farmers State Bank is the oldest bank in Clinton County. In addition to the main location, there are five branch locations in Northwest Missouri. The bank has made a significant investment and built its growth strategy around mortgage lending operations.


Farmers State Bank encountered difficult years in the 1980s that required the bank to rethink their lending strategy. “The Farm Crisis adversely impacted one of our main lines of business, which was agricultural lending,” commented Duane Kohlstaedt, CEO, Farmers State Bank. “We realized that we needed to find a new niche to replace our agricultural portfolio in order to remain competitive.” As a community lender, it was important for Farmers State Bank to meet the needs of their service areas, while also managing risk and growing their customer base. Kohlstaedt said, “There are many rural areas in Northwest Missouri, and we wanted to ensure that we were providing products that our existing customers needed that could also help us attract new business.”


Farmers State Bank identified a core need for a strong mortgage lender in Northwest Missouri and made the strategic decision to fill that need. In the mid-to-late 1990s, Farmers State Bank became more highly invested in mortgage lending and, in 2006, formed a mortgage company as a division of the bank. At that time, the bank began using the FHLB Des Moines Mortgage Partnership Finance (MPF) program and now participates in both the MPF Traditional and MPF Xtra products. Kohlstaedt stated that the MPF program is a large part of Farmers State Bank's long-term strategic plan. “The bank has relied heavily on MPF for fixed-rate mortgage originations as the program helps mitigate interest rate risk and better manage credit risk.” As a community lender, it is also important to have the ability to retain servicing on mortgage loans in order to maintain long-term customer relationships. The MPF program allows Farmers State Bank to give their customers peace of mind that their loan will not be sold or serviced outside of the local area. Additionally, it provides the bank with the opportunity to cross-sell other products, including retail and loan, to its mortgage customers.


Farmers State Bank has originated just under 5,400 mortgage loans worth more than $625 million with 85-90 percent of fixed-rate mortgage loans originated through MPF. Using the MPF program as a key piece of the bank's mortgage strategy has benefited Farmers State Bank. “The MPF program gives us the ability to offer long-term, fixed-rate products without having to address the related funding risk,” said Kohlstaedt. “It also allows some flexibility on characteristics specific to rural areas that traditional conforming programs do not facilitate.” With MPF, Farmers State Bank has access to products for the bank's customers base that would not be available without the program. “We take pride in knowing our customers and our market, and certainly feel that the MPF product allowed us to provide a product and service to these customers while still putting a quality asset on the books. The performance of our portfolio has proven this out over time.”

What's Next

Kohlstaedt says that Farmers State Bank will continue to rely on the MPF program for fixed-rate mortgage originations. “The investment in mortgage lending and access to competitive mortgage products in rural areas has been a benefit to existing residents as well as potential outside investors. We are able to offer our suite of mortgage products because of our participation in MPF.” “The MPF program will continue to be a large part of our long-term strategic plan and primary tool for secondary market originations,” commented Kohlstaedt.

Considering using the MPF Xtra or MPF Traditional products? Kohlstaedt has some advice as a long-time user. “Involve staff from day one of training and implementation and let them be part of developing the process and marketing strategy. FHLB Des Moines has put together a very strong support team and training staff. Use them. They are great!”

For More Information

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