Subservicing Offers Another MPF Option.(Mortgage Partnership Finance)(Federal Home Loan Bank)(Brief Article)

At the moment lenders participating on the Mortgage Partnership Finance risk-sharing venture have to retain ownership of servicing rights on the loans they originate.

But that does not, one subservicing expert explains, mean that lenders have to perform loan administration themselves. Lenders can still hire a subservicer to manage the portfolio.

Under the MPF, the regional Federal Home Loan Bank, acting as a secondary market for mortgage loans, assumes interest rate risk and prepayment risk. But the participating financial institution that originates the loan shares credit risk with the FHLB, and that participating institution also retains servicing of the loan - all the better to manage credit risk, according to architects of the program. The MPF is offered by ten of the FHLBs on a national basis. Each of the regional FHLBs are responsible for risk management of their MPF portfolios, but pricing is done on a centralized basis nationally.

But not every loan originator has the back-office capacity, or the desire, to manage loan administration.

Greg Harney, vice president of Essex Home Mortgage Servicing Corp., Norfolk, Va., says that subservicing can allow even more lenders to participate in the MPF program.

"By engaging an approved subservicer, PFIs can participate in the program without building servicing infrastructure," he said.

While the district Federal Home Loan Banks that offer MPF loans have discussed creating a servicing-release option, that is not available today.