The chart to the right shows how the primary mortgage yields continue to be significantly better in comparison to agency MBS yields. The biggest reason for the gap between the primary and secondary market yields is due to large guarantee fees being charged by FNMA and FHLMC to take on the credit risk of mortgage originations.
The tables below the chart compare all types of fixed and callable rate FHLBank advances that could be used when funding mortgages. Any mix of these are applicable to our strategy. With continued high yields on mortgage originations, we see wide margins when holding loans in portfolio.
Primary vs. Secondary Mortgage Rates
Advance Cost Low in Early October
The tables to the right illustrate the funding costs associated with the advances used for the 30-year strategy and details the different advance types selected to fund this mortgage. This scenario employs equal amounts of callable rate advances and fixed rate advances.
The next graphs demonstrate how the balances perform in an up 100 and down 100 rate environment. As shown in each graph, we are able to provide a funding mix with the flexibility to manage varying mortgage prepayment speeds. That mix of callable and fixed rate advances provides stability throughout different rate situations.
The 15- and 30-year Portfolio Lending Strategy links below provide low cost funding while maintaining sufficient spreads.
Consider a Mixed of Callable and Fixed Rate Advances
Flexible Funding Mix Provides Stability With rate Movement
See our full strategies:
15-year Funding Strategy
30-year Funding Strategy