The large spread between the 30-year MBS and 30-year MBA average has been around for four years and doesn’t show signs of changing any time soon. How can you take advantage of this? This month’s scenario is funded with 75% callable advances and 25% fixed advances. The callable advances remain relatively cheap and allow for flexibility in many different rate environments.
Primary vs. Secondary Mortgage Rates
A Good Mix of Callable/Fixed Advances to Fund a 30-year Mortgage
We can choose from many different scenarios, but we chose one with good coverage no matter what rates decide to do. We are hedged for rising or falling rates with this scenario. See the table at the left for a breakdown of our strategy.
Income and Duration: Two Key Factors in Choosing a Strategy
The tables illustrate a few different factors that we look at when choosing a scenario. Duration and income are big issues because we want to make sure we help you hedge risk as well as keeping your bank profitable. This strategy is very risk averse. We are matching duration very closely while still managing to generate good income in many rate scenarios.
Visit the 15- and 30-year strategies below to see how the loan and advance balances perform in significant rate scenarios. Again, with the mix of callable and fixed rate advances, we have abundant coverage in both the down 100 and up 200 rate scenarios. The strategies below also provide more specific details for each mortgage.
15-year Funding Strategy
30-year Funding Strategy