Magazine article American Banker

Two Harbors CEO Downplays REIT Risk to FHLBs

Magazine article American Banker

Two Harbors CEO Downplays REIT Risk to FHLBs

Article excerpt

Byline: Brian Collins

The CEO of Two Harbors Investment Corp. is defending his company's Federal Home Loan Bank membership against claims that it and other real estate investment trusts are injecting credit risk into the FHLB System with their captive mortgage insurance units.

It would take a "systemic meltdown before there would be a penny of credit risk to the FHLB System," CEO Thomas Siering said Monday during a presentation at a Barclays financial services conference in New York.

"We are disappointed," the CEO said when asked about the Federal Housing Finance Agency's proposal to strip captive insurance companies of their membership and borrowing rights from Federal Home Loan Banks over a five-year period. Two Harbors formed a captive insurer to gain membership to the Des Moines FHLB in December 2013. It had $1.5 billion in outstanding advances from the regional bank as of June 30.

"We are funding pristine prime jumbo loans," with mid-700 credit scores, 30% down payments and pristine debt coverage ratios, the CEO added.

Siering also stressed that the advances Two Harbors uses are "consistent" with the mission of FHLBs, which is to provide liquidity for the residential mortgage market. Advances from the Des Moines FHLB currently make up about 10% of Two Harbors overall funding mix.

"We hope that FHFA will reconsider its proposed stance on this. We are hopeful we can persuade them to think about this differently," he said.

Meanwhile, the mortgage REIT is dedicating resources to develop a non-qualified mortgage loan program that could be "saleable" in the secondary market. …

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