Mastering the MPF Program for Maximum Revenue
posted on Tuesday, April 12, 2016 in Mortgage Partnership Finance
First Federal Bank & Trust was established in 1935, operating as a traditional mutual savings and loan until 2003. For the past 13 years, First Federal has converted to a community bank model with product lines that include business banking (its largest loan portfolio is commercial loans), a growing trust department and an aggressive mortgage banking operation. First Federal has three locations in Sheridan, Wyoming, a rural area of about 35,000 people, and remains a federal savings bank. First Federal's total assets are approximately $270 million.
“MPF Traditional provides highly competitive pricing on loans with several price adjustments.”
First Federal Bank & Trust sells home loans direct to Fannie Mae, where they retain the servicing, and to several other secondary market investors, with servicing released. One of the challenges facing First Federal was market concentration in mortgage banking, as the bank currently controls 40 to 60 percent of the local market. “One of our strategic goals includes the creation of additional revenue sources to provide additional diversity and stability to the bank,” said Dave Ferries, president and chief executive officer. The secondary market servicing portfolio is an important revenue source for First Federal, totaling approximately $50,000 monthly. According to Ferries, “We were experiencing difficulty in growing the servicing portfolio beyond $200 million, as we already serviced the loans paid off from new originations.”
First Federal entered into the MPF Program in 2013 — the same time Fannie Mae discontinued volume pricing. First Federal added two new product offerings: MPF Direct and MPF Traditional. “We are utilizing the new products to leverage our online mortgage program to provide competitive pricing on high-quality home loans,” said Ferries.
Increasing Online Opportunities
During a 2014 FHLBank meeting, First Federal representatives had the opportunity to attend a presentation by Zillow. “Utilizing the contacts and information from that meeting, we entered into a business relationship with Zillow. That later expanded to include Lending Tree and similar websites for online mortgage business within the state of Wyoming,” Ferries explained. During 2015, First Federal set a goal of 100 online home loans, which they exceeded by eight loans (and represented about one-third of their aggregate annual loan production). Since 95 percent of these loans are located outside of the bank's traditional market, nearly all generate new servicing portfolio volume, thanks to a more diverse geographic footprint of lending opportunities.
Looking Ahead/What's Next
“With increased activity in residential mortgage lending, the MPF Program is a strong option for improved yield and market penetration.”
Ferries looks forward to utilizing the MPF Government product and the MPF Direct product. “We have been reluctant to portfolio long-term fixed-rate home loans while the Federal Reserve was in Quantitative Easing operations. It's hard to compete with Fannie Mae and the Federal Reserve. For 2016, we believe we have the opportunity to fund jumbo loans in several attractive adjacent markets in both larger suburban and specific resort markets. These jumbo loans have nearly the same risk profiles of conforming Fannie Mae products with 20 to 40 basis points price premiums.” First Federal worked with FHLB Des Moines to create an advance funding structure that minimizes interest rate risk to the bank and provides a stable margin. First Federal anticipates loan volume of $1.5 million per month on this new program, with an eventual goal of approximately $20 million in the jumbo loan portfolio, in addition to selling jumbo loans through the MPF Direct product. First Federal also foresees the opportunity to leverage the MPF Government solutions from FHLB Des Moines. Several municipal and school districts utilize First Federal's commercial banking services. Typically, they would pledge bank securities but as lending activities consume more of the bank's liquidity, First Federal is planning to utilize the FHLBank letter of credit program for pledging requirements.
“FHLB Des Moines has been a stable long-term partner to First Federal, providing short- and long-term funding opportunities.”
For More Information
MPF Traditional: Original MPF 125 MPF Xtra MPF Direct MPF Government