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Funding-Strategy – Details


15-Year Fixed Rate Mortgages at 3.25%

April 18, 2012

Members posting aggressive mortgage rates may attract a larger market share and still make a profitable spread by relying on long-term advances as the funding source for originations. Some members are posting 15-year fixed rate mortgages in the 3.00 percent to 4.00 percent range. Retaining mortgage originations in the portfolio provides an annuity stream of interest income and adds organic growth to the balance sheet, rather than the one-time fee income generated by selling the mortgages into the secondary market.

If rates rise, it is likely the prepayments would slow, thereby extending the average life of the mortgage. If rates fall, prepayments would likely accelerate, leaving excess funding to be reinvested at prevailing market rates. These strategies assume the rate changes ramp up evenly over the first 12 months, and then remain at that level for the remaining term.

Below are three examples of funding scenarios for fixed rate mortgages tailored towards mitigating risk in rising-rate scenarios.

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