PDF 15-yr Fixed Rate Mortgage 2.75% 15-yr Fixed Rate Mortgage 2 ...
15-Year Fixed Rate Mortgages at 2.75%
01/08/2013
Mortgage rates continue to trend near record lows. The 15-year fixed-rate mortgage rate is about 2.75% this week, and many members indicate that they are willing to hold these mortgages in the loan portfolio. Members have access to a reliable source of advances to fund mortgage originations and hedge the interest-rate risk. Retaining mortgage production adds organic growth to the balance sheet and an annuity stream of income at a time when most investment alternatives offer very little yield.
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:
1,200
1,200
1,200
1,000
1,000
1,000
800
800
800
600
600
600
400
400
400
200
200
200
0
0
24
48
72
96
120
144
168
192
216
240
264
288
312
336
360
Advances (M)
BASE
Mtg Rates:Down 50 bp
Mtg Rates:Up 100 bp
Mtg Rates:Up 300 bp
Mtg Rates:Up 500 bp
Advances (C)
0
0
24
48
72
96
120
144
168
192
216
240
264
288
312
336
360
Advances (M)
BASE
Mtg Rates:Down 50 bp
Mtg Rates:Up 100 bp
Mtg Rates:Up 300 bp
Mtg Rates:Up 500 bp
Advances (C)
0
0
24
48
72
96
120
144
168
192
216
240
264
288
312
336
360
Advances (M)
BASE
Mtg Rates:Down 50 bp
Mtg Rates:Up 100 bp
Mtg Rates:Up 300 bp
Mtg Rates:Up 500 bp
Advances (C)
15-yr Fixed Rate Mortgage
2.75%
15-yr Fixed Rate Mortgage
2.75%
15-yr Fixed Rate Mortgage
2.75%
55% 7-yr Classic advance 45% 7-yr Amortizing advance Total Liabilities
1.87% 1.25% 1.59%
Initial Net Spread
1.16%
Average Net Spread (seven years)
Down 100 bp
-0.40%
Down 50 bp
0.05%
Base case/Rates Flat
0.72%
Up 100 bp
0.89%
Up 300 bp
1.06%
Up 500 bp
1.14%
50% 1-mo Classic advance 50% 5-yr Classic advance Total Liabilities
0.24% 1.26% 0.75%
Initial Net Spread
2.00%
Average Net Spread (seven years)
Down 100 bp
1.10%
Down 50 bp
1.62%
Base case/Rates Flat
1.95%
Up 100 bp
1.57%
Up 300 bp
0.68%
Up 500 bp
-0.26%
100% 7-yr Amortizing advance Total Liabilities
1.25% 1.25%
Initial Net Spread
1.50%
Average Net Spread (seven years)
Down 100 bp
0.62%
Down 50 bp
1.24%
Base case/Rates Flat
1.72%
Up 100 bp
1.49%
Up 300 bp
0.88%
Up 500 bp
0.22%
This statement does not purport to disclose all of the risks and other material considerations associated with funding strategies. Members should not construe this disclosure statement as business, legal, tax, or accounting advice from the Bank. Members should consult with their own business, legal, tax, and accounting advisers with respect to funding strategies and should refrain from entering into funding strategies unless they have fully understood the terms and risks. Please contact your relationship manager or a financial strategist for customized funding strategies.
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