A less obvious benefit of the elevated spreads and gain on sale margins is that it affords the member some flexibility to potentially sell the loan in the future as it seasons, even if rates rise or premiums shrink. For example, for a loan originated today at 3.00%, mortgage rates could rise by 44 basis points and the loan would still be priced at par on a 12-month horizon.
Alternatively, if you were to assume that gain on sale margins contracted to 2.00%, the loan could absorb a move higher in mortgage rates of 32 basis points. This approach could be particularly valuable for members who prefer to emphasize other types of loans, and as the economy returns to normal, would expect to resume selling as opposed to holding most of their residential production. Through the Mortgage Partnership Finance®* (MPF®) Program, FHLBank Boston offers standard pricing for loans with up to 24 months of seasoning.
For members where the willingness to portfolio residential loans exceeds the amount of deposits needed to fund it, several advance solutions look particularly attractive right now. In particular, the inversion and flattening of the advance curve from 12- to 24-month range presents an opportunity to mitigate some of the interest-rate risk being taken via the fixed-rate mortgages. And floating-rate advances like the SOFR-Indexed Advance and the Discount Note Auction-Floater Advance can offer the repricing frequency of being on the short end of the curve, but with greater liquidity and potentially interest expense benefits.
FHLBank Boston does not act as a financial advisor, and members should independently evaluate the suitability and risks of all advances. *Mortgage Partnership Finance® and MPF® are registered trademarks of Federal Home Loan Bank of Chicago.