Partnering With An FDIC Bank by Gus Dahleh(1)
Why is partnering with an FDIC Bank a wise decision?
First of all, Partnering with an FDIC bank will essentially allow access to funds with very low interest rates. The banks can borrow money from each other at the interest rate at which FDIC Banks lend money to each other. FDIC banks are not subject to state mortgage lender laws. FDIC banks are characteristically overseen by the Office of the Comptroller of the Currency, which is an agency within the U.S. Treasury Department, pursuant to the National Bank Act.
FDIC banks can service their own products. Mortgage banks, in most cases, are contractually barred by covenants in their warehouse line agreements from servicing loans closed with warehouse funds. Also, the interest rate on funds borrowed from the warehouse facility is high enough that they quickly make a loan unprofitable.
Partnering with an FDIC Bank to manage turbulence
Because mortgage banks are mostly in the business of originating residential home loans (purchase and refinance loans), the residential housing crash, with the resulting economic problems, has caused many issues for businesses that are completely tied in with the market. In response to our economic issues, mortgage banks have gone out of business or sought to affiliate or partner with FDIC banks because they are better able to manage changes in the home loan market for the following reasons.
While the level of inspection aimed by the OCC is noticeably more intense, FDIC banks that partner with clients are usually relieved from state-imposed mortgage-loan originator licensing requirements. This permits FDIC banks to hire loan originators who might not otherwise be able to obtain state licensing because of bankruptcy filings or other non-financially related criminal histories.
For the past year, the Fed Fund Rate has been 0.25 percent (one-quarter of 1 percent). FDIC banks borrow money directly from a Federal Reserve Bank (at the Federal Discount Rate). For the past year, the Federal Discount Rate has been 0.75 percent (three-quarters of 1 percent).
Pit falls of partnering with an FDIC Bank
Joining forces with an FDIC bank doesn’t come without problems/limitations. For example, careful thought should be given to the transition in order to compartmentalize liabilities in each respective entity and to avoid successor liability concerns.
Mortgage bankers moving to an FDIC bank platform should be informed that financial regulations on the FDIC side are increasingly more complicated and closely scrutinized by regulators. Care must be taken to avoid any fast and loose work when the OCC is evaluating a company partnering with an FDIC bank.
Author “Gus Dahleh” is a sales leader who is owner of GusDahleh.com and is rather dedicated to providing readers with important as well as useful information and facts. Take a look at the following website link for more info on why its beneficial partnering with an FDIC bank.
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