Terrie McQuillen is senior vice president at member Community National Bank in Derby, Vermont. Community National Bank is a dedicated user of the Bank's Mortgage Partnership Finance ® (MPF ®) program.

We started selling to the Mortgage Partnership Finance program in early 2003. We also sell to Fannie Mae and Freddie Mac.

The bank's management became intrigued by the program after reading the MPF literature. They wanted to take a closer look at the advantages of MPF. I was attending the New England School of Banking at the time and chose to do my project on the MPF program. I studied all aspects of MPF, including its pricing advantages, and proposed to our management that we participate in the program.

What caught my attention were the possible income advantages of the program. MPF also gave us an alternative to the agencies -- to Freddie Mac and Fannie Mae. Having another venue for selling mortgages means more price competition.

When the Federal Home Loan Bank of Boston (the Bank) introduced the program, they talked about MPF generating a higher premium. They said the premium advantage would be between 25 and 40 basis points. Overall we have been very pleased with MPF's pricing; it has had a positive impact on the bottom line.

Servicing the Loans
Servicing of MPF mortgages is very similar to that of Fannie Mae and Freddie Mac. If your platform handles servicing for the agencies, it can likely handle servicing for MPF. Our servicing platform, Jack Henry Silverlake, handles the MPF servicing very well. Monthly cutoff reporting and balancing is completed easily using Jack Henry Silverlake reports that mirror MPF reporting forms. Turnaround reports are provided within two business days by MPF, making the reporting process run smoothly and discrepancies easy to resolve.

Our MPF mortgage process, including origination, selling, funding and servicing, flows well. When becoming a new MPF program participant, I would recommend visiting an experienced MPF participant who can walk you through the complete process and show you how well it does work.

The MPF Customer Support Desk is also valuable. If the web site or internet is down, the support staff can complete funding over the phone. They are able to assist with changes to credit enhancement forms, and handle pair-off and extension requests. Their help desk staff are always personable and professional.

Becoming More Competitive
Using MPF has made us more competitive, allowing us to price to our market. On loans with certain characteristics (for example, cash-out refinancings), other agencies charge delivery fees, while MPF does not. This can serve as yet another pricing tool.

Another advantage is that MPF gives you five days after you have funded a mortgage loan to deliver the note. The agencies require the note by the commitment expiration date. You can take a shorter commitment with MPF than you can with Freddie or Fannie because you're allowed those extra days to deliver, resulting in better pricing opportunities.

MPF allows a bank to extend its contracts versus pairing out. They also offer a five percent up or down tolerance on delivery, meaning a greater tolerance on larger contracts with no additional cost. We like MPF's tolerance at five percent, which gives us a little more leeway on the larger contracts for under- or over-delivering.

Price is the big draw for our bank. The credit enhancement fee paid by the Bank on a monthly basis is attractive. We feel that the credit enhancement fee helps to offset the shared risk of the loan. As you build your MPF mortgage portfolio, the credit enhancement fee, which is paid on UPBs, grows accordingly. Our newest master commitment carries a 10 basis point credit enhancement fee, which is a real income generator. We now have an MPF portfolio of about $43 million. The credit enhancement fees paid on all of our master commitments are expected to generate around $38,000 for us in 2006.

A Closer Relationship
Our MPF representative, Mark Sullivan, is right next door in New Hampshire. Mark often stops in the office to visit our mortgage origination and servicing management team. He addresses any concerns we might have and regularly asks for our suggestions on program and process improvements. MPF training is accessible; we're able to drive to Manchester, New Hampshire, for a daylong conference or a training session. We have a great working relationship with MPF.

Community National Bank has approximately $350 million in assets and a total loan portfolio of about $252 million. Our own real estate portfolio is about $130 million, and we service another $131 million for the secondary market. We're located on the northern border of Vermont in the Northeast Kingdom. Based in Derby, Community National has branches in Orleans, Essex, Caledonia and Washington counties. We take pride in serving our communities; the MPF has helped us continue to provide competitive mortgage products to our customers.

For more information about the Bank's MPF program, please call 888-675-0556, or Mark Sullivan at 617-292-9672, William Dolan at 617-292-9691, or Paul Pouliot at 617-292-9641.

"Mortgage Partnership Finance" and "MPF" are registered trademarks of the Federal Home Loan Bank of Chicago.