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Funding-Strategy – Details

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30-Year Fixed-Rate Mortgages at 4.25%

May 27, 2014

The sustained low interest rate environment continues to take its toll on the net interest margins and earnings of many financial institutions across New England. The net interest margin, which rose slightly early in 2013 before leveling off in the third and fourth quarters, fell during the first quarter of 2014. The cost of funds continued to fall during the first quarter, though the yield on earning assets fell at a much faster pace, resulting in a decline in net interest margin.

Many institutions sold most, if not all, of their 30-year fixed-rate mortgages into the secondary market during the recent refinancing boom. While that strategy produced substantial gains during that period, 2014 may be bringing a sobering effect to bottom lines. Institutions are now facing the challenge of replacing gains that will not be recurring this year.

A member with some loan demand in its market recently inquired about funding options for holding 30-year fixed-rate mortgages. The member has exposure to rising interest rates and was interested in evaluating strategies funded out to five or seven years.

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