Partnerships Promote Community Lender Involvement in Secondary Market
By Kerry Curry | September 27, 2016
Southeast National Bank isn’t a direct seller/servicer to Fannie Mae — it’s simply too small. Yet the Moline, Illinois-based community lender is able to reap many of the same benefits thanks to a partnership established in 2008 between Fannie Mae and the Federal Home Loan Bank’s Mortgage Partnership Finance® (MPF®) Program.
Through this partnership, eight Federal Home Loan Banks (FHLBanks) offer MPF Xtra®, a secondary marketing product for FHLBank members in their respective Districts.
“Some FHLBank members were looking for another secondary market outlet for mortgages rather than putting them all on the balance sheet or selling them under the MPF Traditional product which is a collateralized, risk-sharing product structure,” says Steve Franke, a relationship manager of single-family business at Fannie Mae. “We reached out to one another and created this product.”
MPF Xtra, which is sold exclusively to Fannie Mae via the conduit of the MPF Program, is administered by the Federal Home Loan Bank of Chicago (FHLBC), Fannie Mae’s counterparty under the product.
So far, about 550 lenders are using MPF Xtra to sell mortgages to the secondary market, and Fannie Mae is hopeful more will take advantage of this opportunity.
Southeast National Bank, with assets of $200 million, has been serving Moline residents since 1961. Last year, Southeast made $20 million in MPF Xtra loans and another $10 million on portfolio.
“[FHLBank has] met the need for a small bank to be able to deliver a product into the secondary market with a minimum amount of paperwork,” says Terry Esch, executive vice president at Southeast.
A Partnership That’s Working
Jennifer Burlison, senior vice president and national marketing director for the MPF Program, says many FHLBank members, because of their small size, are not eligible to be direct sellers to Fannie Mae but still have vital access to the secondary market through MPF. This provides liquidity and an increased access to credit for underserved consumers in rural markets.
About 70 percent of FHLBank members have assets of $400 million or less.
“It’s a unique relationship,” she explains. “The FHLBank stands between the seller and Fannie Mae and we manage the relationship. We benefit because we provide a service and benefit to our members with access to Fannie Mae without all the requirements of a direct seller/servicer.”
Tapping the Latest Technologies
The MPF Program recently updated its marketing materials to promote the relationship and Fannie Mae’s technologies that are accessible under it.
When the partnership began in 2008, the only Fannie Mae technology available to participating FHLBank lenders was Desktop Underwriter®. Now MPF Xtra allows access to a suite of comprehensive loan processing technology, including Collateral Underwriter, EarlyCheck™, Uniform Collateral Data Portal® (UCDP®), Condo Project Manager™ (CPM™), and Fannie Mae Connect™.
“Use of Fannie Mae’s technology solutions, along with strong training and support from the MPF Program, is helping the FHLBanks’ member sellers, who are primarily small lenders, improve their overall loan manufacturing quality on the loans they are selling on the secondary market,” Franke says.
“In turn, this is enabling these member sellers to meet evolving secondary market requirements while minimizing repurchase risk which is very important given how impactful repurchases can be for smaller institutions.”
More than 6,000 FHLB members have the potential to become MPF Xtra sellers.
It has been a mutually beneficial partnership. MPF Xtra simplifies the mortgage manufacturing and selling process into the secondary market for the small community lender segment while Fannie Mae achieves efficiencies by leveraging the operational structure and support of its FHLBank partners.
After nearly eight years of the MPF Xtra partnership, Fannie Mae has been able to strengthen its support of the small, community lender segment by providing over $28 billion of liquidity to these FHLBank member institutions.
Fannie Mae, through the MPF Program, looks forward to continuing to grow the number of FHLBank members participating in MPF Xtra and increasing loan sales from existing FHLBank member sellers through enhanced optionality, features, and tools under the MPF Xtra product suite.
Lending Opportunities for Smaller Players
At Southeast, the bank is able to make more home loans than it could if it had to keep everything on portfolio. The result? More residents in its community achieve the American Dream while a community bank prospers.
“The MPF Program meets the need for a bank our size to deliver a product to the secondary market,” he says. “It allows us to meet the scale requirements where we are right now.”
Kerry Curry is a freelance writer for several Texas and national publications and is the former executive and magazine editor for HousingWire.