Two Harbors' approval for membership in the Federal Home Loan Bank of Des Moines (FHLB) will give the real estate investment trust a new way to fund non-conforming whole loan pipelines, according to Deutsche Bank.
The REIT disclosed that one key purpose for the move was to help finance non-conforming loans earmarked for securitization. Two Harbors invests in residential mortgage-backed securities (RMBS), residential mortgage loans, mortgage servicing rights (MSR) and other financial assets.
Deutsche Bank analysts said in a report this week that REITs' access to FHLB financing could help reignite non-agency issuance. “The pure economics of tapping FHLB finance for this purpose may not be attractive right now,” explained analysts. “However, a source of sticky funding could be a useful tool in managing a pipeline of loans, potentially facilitating future issuance.”
Currently financing whole loan purchases via warehouse repo facilities to finance the position is cheaper but FHLB advance funding would “give REITs more leeway in managing the value proposition between holding and securitizing loans that they acquire,” explained Deutsche Banks analysts.