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Funding-Strategy – Details

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30-Year Fixed Rate Mortgages at 3.50%

January 15, 2013

Members have the opportunity to fund mortgage originations with long-term wholesale advances while maintaining attractive spreads. FHLB advance rates continue to trend near all time lows, providing an advantageous time to fund fixed-rate loans with a reliable source of long-term liabilities. By locking in the spread on the mortgages held in portfolio, a member has the potential to hedge the risk of rising interest rates and minimize the volatility of net interest income.

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 24 months, and then remain at that level for the remaining term. Below are three examples of common funding scenarios for fixed-rate mortgages.

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