How MPF Direct can help you retain high-value customers

posted on Thursday, October 27, 2016 in Mortgage Partnership Finance

In a world of shop-around financing and shrinking loyalty, community banks and credit unions are faced with finding new ways to engage and retain once-reliable customers. High-balance customers in particular place a premium on customer service. If they don't receive the level of service they're looking for, they aren't afraid to move or divide their accounts to the places that can offer a more rewarding relationship.

Even though these high-balance, high-net-worth customers offer a lucrative opportunity for financial institutions to deepen relationships, their needs can sometimes exceed a local lender's capabilities. Special CD (Certificate of Deposit) rate bonuses and wealth management services may appeal to some. But are you ready when those same clients come to you wanting to buy a million-dollar home?

If your competitive edge is how you service that high-balance customer, you can't lose out on a long-term relationship opportunity like that. The MPF Direct program enables you to fulfill jumbo non-conforming home loan requests up to $2.5 million.

Jumbo loans are big business

According to Guy Cecala, CEO and publisher of Inside Mortgage Finance, jumbo loans made up 19% of all mortgage business in 2015 – an all-time high. That equated to an estimated $320 billion in jumbo mortgage financing for the year. Can these non-conforming loans be the difference between retaining a high-balance customer and losing out on a potential lifetime relationship? That's the $417,000+ question.

The good news is that community lenders can better compete for a piece of the jumbo pie with the MPF Direct Program, available to Federal Home Loan Bank of Des Moines members.

Here's how it works:         

MPF Direct-qualifying jumbo loans are those loans in amounts ranging from $417,000 to $2.5 million.

  • Maximum LTV: 90%;
  • Loan Limits: Up to $2.5 million;
  • Occupancy: Owner-occupied, second homes and non-owner occupied;
  • Delivery Commitment: Best Efforts;
  • Remittance: Servicing Released only.

FHLB Des Moines allows participating financial institutions (PFIs) to make jumbo loans with confidence, and then sell that jumbo loan through the MPF Direct program to avoid the internal risks, such as long-term interest rate risk.

Now's the time to “C's” the opportunity

It's a critical time for local lenders. Regulatory pressures. Technology shifts. General mistrust of the financial industry. Jumbo loans allow you to carve out a niche in a segment teeming with potential: high-balance customers. Here are the 5 C's of how you can use MPF Direct to easily manage a non-conforming loan program, allowing you to focus on customer satisfaction.

  1. Capitalize: With jumbo loans accounting for nearly 20% of the mortgage market, MPF Direct allows you to take advantage of a growing segment of borrowers. This can be especially relevant in cities where listing prices continue to climb. With such high home prices, jumbo loan requests are becoming more commonplace.
  2. Compete: Contend with larger banks for non-conforming business, without a minimum Jumbo volume requirement, while offering your personalized level of service. Competition for the jumbo market is out there, and they are familiar names. (Wells Fargo is the nation's largest jumbo lender, for originations and purchased loans, with JPMorgan Chase in second.) You can use your own familiar faces and pre-existing relationships to your advantage.
  3. Confidence: The MPF Program has partnered with Redwood Trust, the MPF Direct investor, to make jumbo financing available to our participants. Redwood Trust a well-established REIT in the jumbo mortgage market is a steady, proven outlet for purchasing non-conforming loans. Redwood Trust has exhibited reliability in both pricing and service. With the strength of the secondary market partner, there's no need to hold onto sizable loans at a fixed rate for a long period of time.
  4. Control: By selling your jumbo loan to the secondary market through MPF Direct, you know your customer relationship is secure. You can maintain the relationship, without worrying about other bank investors who could potentially market to your customers.
  5. Cross-sell: Jumbo loan customers can often represent larger opportunities due to the size and nature of their financial needs—needs that you can fulfill. Jumbo loans can open the door for additional business, such as business financing, business checking accounts, deposit accounts (CDs) and wealth management. For instance, high-balance customers tend to be more frequent applicants for home equity line of credit (HELOC). The HELOC traditionally has not been heavily shopped, and most customers choose their primary financial institution (71% compared to 28% who look elsewhere). That means the customer who bought a $750,000 home is more likely to seek you out later when it's time to remodel.

Learn more about MPF Direct

Are you losing out on customers due to their jumbo loan needs? Can you think of borrowers right now you may be able to better serve with a solution like MPF Direct? With house prices on the rise and fierce competition looking to lure away rate shoppers, these situations are only going to increase. As an FHLB Des Moines member, we can help you identify new lending opportunities and facilitate your application in the MPF Direct program.

MPF Direct benefits at-a-glance

There are many benefits to selling your Jumbo Loans to the secondary market using the MPF Direct program:

  • Offer competitive both long-term fixed-rate and Hybrid ARM jumbo residential mortgage loans to borrowers,
  • Receive attractive all-in pricing (net price + servicing-released premium),
  • Access through FHLB to an investor with a long history in the jumbo mortgage market and has proven reliable,
  • Transfer long-term interest rate and pre-payment risk to the investor, and
  • Cultivate relationships with your customers, without worrying about other competitors who could potentially market to your customers.

Like this article? Visit our MPF Microsite to learn more.