March 2017 - For a secondary market mortgage lender, securing a liquidity source that is cost effective, reliably available, and aligned with the maturity of held-for-sale loans is critical but often challenging. Retail deposits can be expensive to raise in times of high mortgage production and can saddle an institution with too much cash when loan volume declines. Traditional warehouse lines present other challenges to lenders, including costs.
To help meet the funding needs of lenders selling into the secondary market, FHLBank Atlanta launched its Residential Available for Sale (RAFS) solution in 2014. RAFS enables shareholders to establish lendable collateral value on their pipelines of closed residential 1-4 family mortgages awaiting sale into the secondary market. RAFS collateral becomes part of a shareholder’s general collateral pool – expanding overall borrowing capacity – and can be used to secure advances at standard market pricing. It’s a flexible, readily available source of additional collateral capacity for a mortgage warehouse line or any other short- or long-term borrowing need.
Florida Capital Bank, a $350 million community bank based in Jacksonville, is a participant in RAFS, and, along with other shareholders, assisted the Bank in defining market needs and identifying key features of the solution. Florida Capital’s mortgage operation is a core business channel, with $1 billion in originations in 2016, and the institution sells virtually all production in the secondary market. In times of high loan demand, securing a reliable source of liquidity at cost-effective rates can be a challenge.
“Several years ago, our mortgage volume had risen to the point of stressing the bank’s funding capacity,” said Mark Johnson, president of Florida Capital Bank. “We were looking for alternatives to brokered CDs, but traditional warehouse lines can be expensive and are not always available.”
According to Johnson, RAFS was an ideal fit for Florida Capital and serves as a readily available source of collateral value to secure advances from FHLBank Atlanta. Because RAFS collateral value is derived from mortgages held for sale, it better matches the maturities of the assets being funded and enables Florida Capital to be more responsive to spikes and troughs in mortgage production. Additionally, Johnson says that RAFS is more economical and dependable than a warehouse line and has the added benefits of being automated, easy to use, and operationally friendly.
“RAFS was the perfect tool to help us manage our balance sheet more effectively with our most significant business channel,” said Johnson.
Qualifying RAFS collateral includes wholly owned residential, traditional, prime 1-4 family first mortgages that are underwritten to the guidelines of the investor and identified as “held for sale” on the shareholder’s periodic regulatory reports. Mortgage loans can be pledged to the Bank for up to 90 days. In addition, all other FHLBank Atlanta collateral eligibility requirements for residential 1-4 family first mortgages apply. Full eligibility requirements are listed in the Bank’s Member Products and Services Guide.
• Reliable, available funding when you need it. RAFS is a flexible source of mortgage warehouse funding during periods of higher residential loan demand.
• Competitive pricing. RAFS collateral can be used to secure any advance product at standard pricing, making it far less expensive than traditional warehouse lines in the market today.
• Easy to use. Shareholders submit daily reports online. Additionally, the Bank generally does not require shareholders to deliver the mortgage documents to access funding.
Four Steps to Get Started
For more information on RAFS and to get started, call your FHLBank Atlanta relationship manager at 1.800.536.9650, extension 8011.
The Federal Home Loan Bank of Atlanta is not a registered investment advisor. Nothing herein is an offer to sell or a solicitation of an offer to buy any securities or derivative products. You should consult your own legal, financial, and accounting advisors before entering into any transaction.