20 January 2014

Captives helping FHLBs extend their mission

Captives involved in the residential home loan market may have the opportunity to join federal home loan banks and benefit from improved liquidity and risk financing as members.

That is the word from Scott Geromette, partner at law firm Honigman, who describes the development as the “newest thing in the captive space right now”; one that is being driven by the resourcefulness of some of the federal home loan banks in response to the changing needs of the residential mortgage market.

He tells Captive International that the development of captive involvement in the federal home loan space has accounted for “perhaps fifty percent of my time over the past six months” as the federal home loan banks have sought to extend their mission.

Geromette explains that as licensed insurance companies, captives are eligible to be considered for membership in the federal home loan banks. This in turn provides them with access to additional liquidity and often on very favourable terms.

Captives owned by mortgage bankers or real estate investment trusts are able to access liquidity and more stable long term funding at significantly lower cost of capital and on more flexible terms than in the commercial market. “It’s really a home run”, explains Geromette.

While for the home loan banks it is a natural extension of their mission to extend greater support to the residential home loan market, he explains.