Quick Reference
- Loans secured by residential real estate
- Conforming, 25-year term
- Specify the % of the Market you wish to capture
- Fixed rate, Nat'l Mtg Rt, May be sold
- Variable Rate, 1 yr CMT, + 250bp, May not be sold
- Affected by competition
On the Assumption Form
- Specify the Desired Market Share: 0% 5% 20% 50% 100%
- Specify % Fixed that may be AFS: 0% (all variable rate) 5% 10% 20% 100%
- Specify the % fixed that is AFS: 0% 5% 10% 50% 100%
Definition
All loans secured by residential real estate including multi-family residences and mobile homes defined as real property by state law, but excluding Home Equity loans. Generally Residential Mortgage Loans provide funds for the borrower to purchase or hold the residence subject to the mortgage lien.
Term
New Residential Mortgage Loans have a term of twenty-five years. All new mortgages and collateral will be conforming to "normal" market standards so as to permit the sale of these loans into the capital markets, if the Management Team desires such sales.
Fixed or Adjustable Rates
New Residential Mortgage Loans are made at the average National Mortgage Rate as reported in the financial press. A Managerial assumption determines what percentage of the new loans are at a fixed rate versus an Adjustable Rate (ARM). Only fixed rate loans may be later assigned to Available for Sale (AFS) and subsequently sold. All ARMs must be held in the Residential Mortgage Loan portfolio. The Adjustable Rate is the one year US Treasury Rate plus 250bp.
Credit Quality and Reserves
The historical credit quality characteristics (including the allocated reserves or Allowance for Loan Losses (ALL)) of Residential Mortgage Loans are shown on the Loan Credit Quality Report.
As the EOP balances of outstanding Residential Mortgage Loans grow, Management will need to assure that the ALL grows. Reserves must be maintained against the Bank's regular portfolio as well as the Available for Sale portfolio. The requirements for ALL are primarily driven by the amount and character of non-performing assets.
Competitive Banking Market Assumptions
The quantity of new Residential Mortgage Loans available and the average dollar amount of each new loan are specified in Community Data and Information. The Management Team must specify one of five alternatives: 0%; 5%; 20%; 50%; or 100% of the total Residential Mortgages that are available. The number of new Residential Mortgage Loans in the community will be allocated to the individual banks based upon the Management Assumptions weighted by the Total Assets of the competing banks.
Additional Comments
In addition to assumptions about the percentage of total mortgages and the percentage of fixed rate versus ARM loans, Management must also specify the percentage of new fixed rate loans which are to be designated as Available for Sale.
