The Federal Home Loan Bank of Indianapolis (FHLBI) recently released more than $761,000 in Lender Risk Account (LRA) funds to 43 Indiana and Michigan depository members in recognition of the performing loans they sold into one of FHLBI’s Mortgage Purchase Program (MPP) aggregate pools. Payouts to participating FHLBI members ranged from $65 to as much as $112,000, depending on the dollar volume of originated mortgages sold into the pool.
LRA: An Additional Income Opportunity for Loan Originators
The LRA is the cornerstone of FHLBI's successful Mortgage Purchase Program, rewarding the bank’s mortgage-originating members for selling high-credit, quality mortgages. With MPP, an LRA is created to offset sellers’ potential loan losses. If the funds are not needed to cover non-performing loans, they are returned to sellers over time.
“It’s great to see FHLBI depository members receiving these payouts,” Dan Green, Senior Director of FHLBI’s Mortgage Purchase Program said. “It tells me they’re lending well in their communities.”
How MPP’s Loan Pools Work
The Mortgage Purchase Program is designed around two pooling concepts – aggregate and stand-alone pools – that give smaller mortgage originators access to more competitive loan pricing that normally only would be available to larger-volume originators.
For aggregate pools, FHLBI members contract to sell a set amount of qualifying mortgages to the bank. These loans are aggregated with those from other FHLBI members into a single, credit-enhanced pool. Conversely, FHLBI’s stand-alone pools are comprised of qualifying loans from a single financial institution.
Participants in performing loan pools – whether stand-alone or aggregate – begin receiving LRA payouts five years after the pool closes. LRA payouts are based on the overall success of the aggregated pool, not of the individual contracts.
“We frequently issue substantial LRA payouts to members with stand-alone MPP pools of performing loans,” Cathy Garrett, MPP Business Development Manager explained, “but this is our first payout of an aggregated pool, and we’re very excited to see it come to fruition.”
The MPP credit structure changed in November 2010 when FHLBI introduced the Advantage MPP and began fully funding the LRA at time of purchase. The bank anticipates making the first LRA payout for an Advantage MPP pool in November.
In addition, due to MPP’s unique LRA structure, loan originators are not required to hold onto risk-based capital for mortgages sold to FHLBI, further freeing up their balance sheets for additional lending capacity. Learn more about the benefits MPP provides FHLBI’s Indiana and Michigan depository members here.
Pictured above: Dan Green, MPP Senior Director (left) and Cathy Garrett, MPP Business Development Manager (right).
The information above is for general information purposes only, and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction and does not purport to be comprehensive. Under no circumstances should any of the above information be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. The Federal Home Loan Bank of Indianapolis will not be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission.