Fitch: FHLB-Funded mREIT Borrowers are Facing a Key Decision

first_img Data Provider Black Knight to Acquire Top of Mind 2 days ago The Best Markets For Residential Property Investors 2 days ago January 19, 2016 1,298 Views Share Save Tagged with: Federal Home Loan Bank Membership Fitch Ratings Mortgage REITs About Author: Brian Honea Sign up for DS News Daily Mortgage real estate investment trusts (mREITS) that currently receive funding from the Federal Home Loan Banks (FHLBanks) will see their funding phased out after five years from the effective date of the FHFA’s final rule for FHLB membership, which was announced on January 12.The new rule cuts off the possibility of FHLBank membership for non-bank financial institutions such as hedge funds, investment banks, and equity REITs, keeping in line with the FHLBanks’ mandate of serving the housing finance market by extending credit to commercial banks, credit unions, and savings/loan institutions.FHLB system’s traditional mandate is to serve the US housing finance market by extending credit to commercial banks, credit unions, and savings/loan institutionsThose mREITs which received captive insurance subsidies from FHLBanks prior to September 2014, when the FHFA originally published the membership rule, will be eligible to receive funding for another five years from the date the rule becomes effective, which will be 30 days after it is published in the Federal Register. With ample time left to find replacement funding, mREITs are faced with a key decision, according to Fitch Ratings: Go with either low-cost, short-term repo funding with a shorter duration and increased liquidity risk, or long-term borrowings that include increased funding costs and affect profitability.“From a credit risk perspective, we would view the latter more favorably because of the benefit to asset-liability duration matching,” Fitch stated.Fitch Ratings believes that an mREIT such as Ladder Capital used the FHLBank system for approximately 42 percent of its funding as of September 30, 2015, will benefit from the five-year phase out provision of FHFA’s final rule. While many REITs have used the FHLBank system for a significant portion of its funding, the total FHLBank advances for the 10 largest mREITS were just 10.6 percent of their overall debt funding. The phasing out of borrowing from the FHLBank system “incrementally weakens the diversification of (mREIT) funding sources,” according to Fitch.The establishment of captive insurance subsidies gave nonbank financial institutions greater access to FHLBank membership starting in 2012, and 2015 saw a significant ramp-up, according to Fitch. At least 23 insurers (out of 7,255 institutions that were members of the FHLBank system, 346 of which were insurance companies) were captive insurance subsidiaries of mREITs, while FHLBank advances increased from 11.6 percent of par value at year-end 2011 up to 15.6 percent of par value by September 30, 2015, according to Fitch. Servicers Navigate the Post-Pandemic World 2 days ago Federal Home Loan Bank Membership Fitch Ratings Mortgage REITs 2016-01-19 Brian Honea Fitch: FHLB-Funded mREIT Borrowers are Facing a Key Decision Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Demand Propels Home Prices Upward 2 days ago Subscribe Data Provider Black Knight to Acquire Top of Mind 2 days ago Home / Daily Dose / Fitch: FHLB-Funded mREIT Borrowers are Facing a Key Decision Related Articles Previous: Economist: TRID is Not Affecting Housing Market Potential Next: RMBS Settlement Cuts Into Goldman Sachs’ Profits Demand Propels Home Prices Upward 2 days ago  Print This Post Brian Honea’s writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master’s degree from Amberton University in Garland. The Best Markets For Residential Property Investors 2 days ago Governmental Measures Target Expanded Access to Affordable Housing 2 days ago in Daily Dose, Featured, News Servicers Navigate the Post-Pandemic World 2 days ago The Week Ahead: Nearing the Forbearance Exit 2 days agolast_img read more