By Michael Garrett
When I speak with credit union peers who are originating mortgages and selling them into the secondary market, I often hear they are only selling through brokers’ channels or directly to the GSEs other than the Federal Home Loan Banks. Others may not sell at all, and simply limit their mortgage origination activities due to concerns about interest rate and liquidity risks.
Based on my credit union’s experience, I believe both of these groups could benefit from a closer look at the Mortgage Partnership Finance (MPF) Program, because they may be missing out on a unique opportunity to manage risk and improve the financial outcomes of their secondary marketing efforts.
To fully grasp the advantages of the MPF Program, you must first understand the nuances of its products and how they fit with your business. CommunityAmerica Credit Union (CACU) is a great example. We have more than 30 branches and 220,000 members, and we’re one of the top mortgage originators in Kansas City. From an interest rate and liquidity standpoint, it isn’t prudent for us to hold all of those loans on our balance sheet. We’ve been selling mortgages under the MPF Program’s MPF 125 product for roughly a decade, and its risk-sharing features have changed how we think of the value of mortgage sales.
The First Loss Account
Some credit unions may hesitate to adopt a mortgage origination and sales model like ours because they are reluctant to either pay insurance costs (in the form of guarantee fees) or go without credit-loss protection. The MPF Program offers a unique third option, taking a first-loss position of 100 bps for loans sold under MPF 125. Given CACU’s low loss rate and the MPF Program’s excellent pricing, the net outcome of this model is many times more financially beneficial for our credit union than that of other secondary market outlets.
Credit Enhancement Fees
Under its credit-enhanced products like MPF 125, the seller is paid for the performance of the loans over time, on top of the initial gains for selling the loans. For CACU, this is a significant financial benefit, and credit unions should factor it in when assessing the value of MPF Program participation.
Beyond Risk Management
When credit unions take advantage of secondary market opportunities like those offered by the MPF Program, it’s ultimately our members who benefit. CACU has seen a high correlation between new and existing members’ use of our mortgage services and their overall engagement with our institution. Access to a reliable mortgage outlet like MPF 125 allows us to reach more members, deepen those relationships by retaining the servicing, and generate fee income that adds to our financial success, which we pass on to our members.
It’s worth your time to contact an MPF Program representative and gain a deeper understanding of how each product’s features could support your business model. If you haven’t done that math, you may be underestimating the MPF Program’s value proposition.
Michael Garrett is Treasurer with CommunityAmerica Credit Union.