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Recently the Treasury Secretary made mention of potential systemic risk for independent mortgage banks despite presenting no detailed evidence that such risk could exist. Trade organizations representing IMBs have rebutted this thesis in the past, and it's worth covering this analysis again, but more importantly, let's list some homeownership recommendations the Treasury Department ought to pursue now.  The White House has made it clear it wants to make homeownership a reality for more Americans in a safe manner. The Treasury can help here if it chooses.First, yet another rebuttal on the independent mortgage bank system risk thesis: These organizations do not take deposits, nor lend to each other. They access warehouse lines of credit from banks and use this liquidity to underwrite mortgages that IMBs sell to investors, including Fannie Mae, Freddie Mac, and Ginnie Mae. The underlying assets of this production are two types: mortgages packed into mortgage-backed securities, and the servicing assets that accompany the mortgages. It bears noting that most mortgages today, unlike those in the 2000s, are strictly defined in statute and regulation to conservative parameters that don't eliminate all risk, but avoid the shoddy underwriting, excess leverage, and yes, outright fraud that appeared in that decade, much of it perpetrated by large banks and Wall Street. Mortgages today remain subject to default risk due to heightened unemployment (in a future recession), but even this risk is mitigated by elevated home price equity levels.If a large IMB or even several IMBs should go under, the pain in the economy is lost jobs and a temporary reduction in mortgage originations, albeit in a very competitive production market with many providers. These IMBs don't have previously originated mortgages on their books because they already sold what they produced in the past. Thus, systemic risk cannot be modeled here.  Some IMBs do hold servicing assets on their books, and in fact these will have to be transferred (sold) to new owners. To model systemic risk here, you'd have to make the case that these servicing assets have fundamental flaws such that no entity would buy them at full or near-full value; no one has pointed out any, however.Because IMBs don't lend to each other, again, systemic risk doesn't apply.  Some banks might face losses from their warehouse lines of credit to IMBs, but these lines are collateralized. During the short time new mortgages are "on the warehouse line," the warehouse bank has rights to the mortgages in production.  Should the bank need to take possession of these mortgages in production, these whole loans are further collateralized by the underlying real estate.If the Treasury (or any other entity) wants to provide more detail on where the system risk might appear, this would be helpful of course.  In the meantime, let's now turn to how Treasury can make homeownership safely available to more Americans and in doing so help reduce income inequality.  We have some ideas.Treasury should engage with FHFA to bring the GSEs out of conservatorship in a responsible manner.  Failure to do so will lead to see-saw mortgage policy every time the White House changes hands, which is against the intent of the GSE statutes that indicate a desire for stable secondary markets (and a hybrid private/public model, not a wholly political marketplace.)  A secondary market cannot keep costs low and serve more Americans safely if the market itself is tied incessantly to electoral politics.  Fannie Mae and Freddie Mac should raise equity capital to further improve their balance sheets.  A condition of release can include utility pricing and limits on ROE. And once placed squarely into the public-utility, private-sector marketplace (with a government charter), the companies can focus on longer-term, steady goals as intended by their authorizing statutes.In addition, Treasury is positioned uniquely among all federal agencies (including HUD) to make a positive impact on homeownership. As the GSEs rapidly improve their balance sheets (the GSEs reported a combined net worth of $125 billion in the fourth quarter) Treasury could reap a huge "warrants homeownership dividend" as part of ending these "temporary" 15-year conservatorships. Deploying some or all of the warrants' value in the form of down payment assistance programs through state and local intermediaries could represent the largest single federal investment in homeownership in U.S. history, producing over 150,000 new homeowners. In addition, Treasury should establish set asides or scoring incentives in favor of homeownership in the deployment of its CDFI Capital Magnet Fund and Bond Guaranty Programs, nearly all of which serve small businesses and rental housing.  Treasury should engage actively to return the normative spread between mortgage rates and risk-free Treasury rates.  For many decades, this spread has averaged 150 basis points. Since 2022, the spread elevated to 250 and even 300 basis points, which has made mortgages more expensive than they otherwise would be, thus penalizing those Americans more sensitive to higher prices.  This spread is a direct result of government pulling back — for the first time in 40 years — from moderating mortgage pricing in times of macroeconomic stress. Treasury knows this is a big problem, knows how to mitigate it, but is doing nothing here.Treasury should weigh in against Washington's general practice of using federal housing insurance guarantee fees as "pay-fors" for unrelated government spending. Today Fannie Mae, Freddie, FHA and VA housing programs all cost more actuarially than they should. Most of the time these pay-fors fund programs for older Americans at the expense of younger Americans, despite older citizens having more wealth (on average) than our younger families. The Treasury Secretary is the Chief Financial Officer of the U.S., "responsible for formulating and recommending domestic … financial, economic, and tax policy, participating in the formulation of broad fiscal policies that have general significance for the economy." If the Administration believes high mortgage rates are a problem, and more families need help getting on the economic ladder's first rung, the Secretary ought weigh in against this unfortunate Washington practice. Instead, it has been silent.Treasury should engage again regularly with IMB trade organizations on homeownership policy matters, something it once did.  Recently, a Washington analyst with many years' experience asked an audience if it could ever remember a Treasury Department less involved with housing and homeownership policy dialogues.  The audience took a moment to reflect—and said, "no."Election years are a time when politicians pay extra close attention to voters and their economic and quality-of-life concerns. It's no secret that young families and families of color have struggled to obtain homeownership and safe neighborhoods in which to raise their children. The Treasury Department has tools to help here — but first it needs to focus less on conceptual risk that doesn't exist, and more on making homeownership markets fair and workable for all Americans.

The top five lenders in our ranking have a combined retail volume of more than $21 billion at the end of the fourth quarter of 2023. While the majority saw a decrease in business between Q3 and Q4, one achieved a significant increase of 782.50%.The data was sourced from National Mortgage News' MortgageStats site, which pulls from quarterly call reports available from the Federal Financial Institutions Examination Council.Scroll through to see which residential lenders are in the top 20 and how they fared in Q4.

Rithm Capital announced Monday an unsecured senior note offering of $775 million to come due in 2029 that will help cover prior debt and additional corporate expenditures. The New York based real estate investment trust and parent company of Newrez stated net proceeds from the offering would be used "for the reduction of indebtedness," including some of a previous 6.25% note offering of $550 million maturing in 2025. Interest on the four classes of 2029 offerings ranges from a 6.375% rate on series C fixed-to-floating cumulative preferred stock to 7.5% for series A notes. The debt will be sold in the U.S. to parties reasonably believed to be qualified institutional buyers as well as offshore investors in compliance with regulations.Rithm's announcement comes after other leading mortgage servicers, including Mr. Cooper and Pennymac, recently issued similar long-term unsecured debt, indicating the transactions are proving to be a useful strategy to support the financial health of certain types of businesses. CEO Michael Nierenberg previously hinted at the likelihood of such deals in Rithm's future during the company's fourth-quarter earnings call. "If we could issue high-yield unsecured debt in the public markets, we're going to explore that heavily," Nierenberg said at the time. "We're hungry."In conjunction with Monday's announcement, Rithm also commenced a cash-tender offer to purchase up to $275 million on its 2025 notes. The offer expires on April 1 at 5 p.m., Eastern time.  The latest news from Rithm also arrives after it recently approved a 2024 stock repurchase program of up to $200 million in common stock and $100 million in preferred to replace a similar 2023 authorization.The capital raised through unsecured debt sales and repurchases could possibly be allocated to support several prior and potential acquisitions following an eventful 2023 for the New York-based REIT. The company made moves to diversify its offerings beyond residential real estate sectors and establish itself as an alternative asset manager, while hinting more deals might be on the way. Along with a highly contested battle to acquire hedge fund group Sculptor Capital Management, Rithm also purchased $1.4 billion of prime unsecured loans from Goldman Sachs and expanded into the European market.Among home lending deals of the past year, Rithm bought the mortgage servicing unit of Australian enterprise Computershare, including its affiliate Specialized Loan Servicing.  Last week, Rithm also entered into an external management agreement with Great Ajax Corp. aimed at growing its asset management platform through commercial real estate investments.  Newly raised funds could also serve the purpose of spinning Rithm's mortgage related holdings off into a new separately traded public company, a possibility it first suggested in 2020. Last spring, leadership again said it was looking at the option again, filing the necessary documentation to proceed with an initial public offering. 

Market participants have been so focused on determining when and how much the Federal Reserve will slow its balance-sheet unwind that they haven't even started to consider another wrinkle: the composition of the U.S. central bank's assets.Officials are preparing for an in-depth discussion of the Fed's asset reduction, a process known as quantitative tightening, or QT, which began in June 2022. Fed Governor Christopher Waller on Friday said he'd like to see a shift in Treasury holdings toward a larger share of short-dated Treasury securities to give the central bank more flexibility the next time it needs to use its balance sheet. "One of the benefits from such a move would be to allow for future asset purchases without needing to expand the balance sheet," BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note to clients Monday. "Of course, planning for the next operation twist while still actively engaged in QT isn't necessarily an inspiring development, even if it does resonate in the context of medium-term risks." For the moment, the market is focused on when the Fed will announce it is tapering QT and when it will actually stop, so as to avoid causing ructions in the overnight funding markets like it did in September 2019. Wall Street estimates for the beginning of the QT taper range from April to September 2024, with the expectation that the pace will slow as the overnight reverse repo facility is nearly empty.The last time the central bank underwent QT, Treasury bills weren't part of its holdings. The Fed purchased them after rates on overnight repurchase agreements spiked to 10% in September 2019 to shore up reserve balances. Before policymakers announced the recent round of balance sheet reductions, strategists contemplated how officials planned on treating its portfolio of T-bills, at $326 billion. At the time, Wall Street strategists thought it would have been prudent for the Fed to sell the T-bills because demand for short-term government debt was outstripping supply, spurring eligible counterparties to park trillions of dollars at the RRP facility. Instead, policymakers opted to gradually reduce the pile, redeeming the securities only when payments of coupon-bearing debt were below the Fed's suggested monthly reinvestment cap for Treasuries, which currently stands at $60 billion.That means the central bank now has about $210 billion of bills remaining, or about 3% of its securities holdings, compared to about one-third before the financial crisis, according to Fed data.Yet Wrightson ICAP senior economist Lou Crandall sees another advantage to a Fed balance sheet comprised of short maturities. A smaller mismatch between the central bank's assets and liabilities also would reduce the volatility of its earnings and losses. "Large reported losses can be a public relations headache," Crandall wrote in a note to clients on Monday. "Greater rate sensitivity on the asset side might be attractive to the FOMC members heading into the next cycle."Ultimately, moving away from the Fed's holdings of mortgage-backed securities is a long-dated policy goal for officials and one that's less pressing than the immediate need to slow and eventually stop QT. It remains to be seen if the monetary authority will achieve that goal. "I don't think the Fed will ever be able to reach a Treasury-only balance sheet, but that won't stop them from trying," said Gennadiy Goldberg, head of U.S. interest rates strategy at TD Securities. "I view it as a goal, but fairly low on the priority list all else considered."

National Mortgage News in partnership with the Best Companies Group is proud to announce the winners of the ranking of the Best Small Mortgage Companies to Work For. These are companies about the overall list of Best Mortgage Companies to Work For in 2024, who have 99 or fewer employees. READ ALSO: Best Mortgage Companies to Work For 2024This ranking is the result of extensive employee surveys and reviews employer reports on benefits and policies. The employee survey covers eight topics: leadership and planning; corporate culture and communications; role satisfaction; work environment; relationship with supervisor; training, development and resources; pay and benefits; and overall engagement. Once the survey data is analyzed, the companies get a score that decides their ranking. The overall score is calculated using the employee survey (weighed at 75%) and the employer questionnaire (25%). To qualify for consideration, organizations with 25 or more employees need a minimum response rate of 40% while companies with 25 or fewer employees need 80%.READ ALSO: Best Small Mortgage Companies to Work For 2023See the best Small Mortgage Companies to Work For in 2024 below:

Bingo, ski passes and pickleball are all on offer at some of this year's best companies to work for, as they look for ways to keep their employees engaged, healthy and fit.  The results of wellness initiatives available at several of the honorees might help prove the adage that a healthy employee is a happy employee. A common trait among businesses with positive outcomes is a top-down focus on health, combined with doses of positive reinforcement and an openness to staff ideas. Those results don't come about without management that recognizes the value satisfied workers bring to its operations."I think that kind of the culture or motto here is 'We're going to take care of employees, and then in turn, they're going to take care of our members,'" said Josh Summerfield, vice president, mortgage sales, about Michigan-based Consumers Credit Union. Consumers Credit Union's "Aces of Bases" softball team At Southfield, Michigan-based Mortgage Center, looking out for staff consists of regular health and finance tips sent through Microsoft Teams on what's become known as Wellness Wednesdays. But managers at the company are also cognizant of employees' needs outside the office and make efforts to address them, so they can perform at their best. "They sit down for a half hour with them every single week. And a portion of that half hour is just a 10-minute section, just checking in on them and making sure that their mental health is good. What sort of resources do they need, just in their personal lives as well?" said Dani Soave, Mortgage Center's assistant vice president of digital marketing.A fair share of professionals today would welcome more wellness benefits, according to 2023 research from Arizent, the parent company of National Mortgage News. In a survey of over 500 workers, half said they wished their companies offered gym membership or fitness reimbursement. Forty-two percent wanted access to nutrition programs, while a slightly smaller share of 41% expressed interest in company-sponsored wellness activities. The good news for companies trying to promote employee health is that the effort doesn't have to involve a huge financial lift. Insurance providers with dedicated wellness credits for the development of such programs drove businesses, including Mann Mortgage — who holds this year's top ranking — to look for ways it could invest the cash that would otherwise go unused."Any of our wellness initiatives are really funded through those wellness dollars that we get in partnership with our providers," said Tara Tucker, the lender's director of human resources. As Mann's leaders looked to expand efforts, Tucker said they asked themselves, "What are some different things that we can put into place to encourage the behaviors that are going to lead to lower insurance claims?"  Mann Mortgage's Mann Kind Foundation holds it Build a Bike event. An early campaign to encourage workers to regularly hydrate has developed into goal challenges and the addition of an onsite fitness center on Mann's Kalispell, Montana, campus.  Similarly, Homeowners Financial Group of Scottsdale, Arizona, put its provider credits to design programs that would motivate staff across the country to prioritize their physical and mental well-being with impactful goals. Even something as basic as getting a regular physical or lowering cholesterol levels could contribute up to hundreds of dollars in gift card rewards for staff and spouses enrolled in Homeowner Financial's medical insurance program. Mann Mortgage also offers a similar benefit. "That's a really good initiative that we try. Obviously, money talks," said Ashlyn Pinter, Homeowners Financial's director of human resources. At the same time, incorporating a gaming aspect adds further fuel to push employees toward more healthy habits."One thing that we really liked doing is healthy bingo," Pinter noted. The cards include squares, with health-minded tasks such as stretching or 30 minutes of exercise. "What we do is, however many rows of bingo they get, they're entered into drawings to win certain healthy items," with prizes that have included an exercise bike, gift cards to HelloFresh or a Ninja blender.But while the lure of rewards encourages initial participation, easy access to fitness activities, lifestyle reimbursements, as well as the ongoing support of management and colleagues help employees take it a step further to sustain good habits.    Like Mann, Consumer Credit Union counts an in-house fitness center among the benefits staff at its headquarters in Kalamazoo, Michigan, can take advantage of to keep wellness in mind, even during a busy workday. "At any given time, you walk down there and there's somebody there on the treadmill or lifting some weights or whatever. They do classes mainly earlier in the morning and at lunchtime," Summerfield said. At the same time, through its Team Consumers program, the credit union also subsidizes a portion of fees for sports club memberships or entry costs to running and biking events. With the current popularity of pickleball, the company also recently installed on its campus courts. The addition was just one of several ideas the financial institution has implemented over the years in response to employee feedback, according to Summerfield.Based on employee requests, Mann's benefits now include partial lifestyle reimbursements for ski passes and other types of sports memberships, as well as for wellness apps. The subsidization of entry fees and memberships often help lead workers to new health-minded pursuits, according to Mann Mortgage's human resources generalist, Courtney Callahan. "I think that has helped encourage people to do things that they might not have done without it," she said.A company who listens to employees and invests in keeping them healthy could ultimately end up creating an environment that encourages better habits across the organization. Mann's human resources team reintroduced a weight-loss challenge to support and connect those striving to shed pounds once it learned of growing interest for such a program. "Even though it's a private weigh-in, we have everyone come at the same time so that they can kind of talk about what works," Callahan said. "Just kind of getting people in the same room to know that they're all doing it together."

A 2019 state law in New York capped rent increases on rent-regulated properties, while also limiting the size of returns that landlords could earn for making renovations and eliminating eviction plans. Property values have since fallen sharply.Ismail Ferdous/Bloomberg The recent struggles of New York Community Bancorp, whose stock price has tumbled nearly 75% since the start of the year, is putting investors on high alert about the rapidly declining value of rent-regulated apartment loans in New York City.Although banks have been making those loans for decades, the confluence of watershed legislation in 2019, rising interest rates and inflation has made it more difficult for landlords and property managers to turn a profit, said Wedbush Securities analyst David Chiaverini. New York Community's concentration in the sector makes it an outlier among regional banks. Roughly one-fifth of all loans held by the Long island-based bank are exposed to the New York rent-regulated multifamily market, according to Wedbush.New York Community built its business with landlords and property owners in the rent-regulated sector over the course of decades. But recent challenges, including an unexpected dividend cut and a poor fourth-quarter earnings report that included a large loss provision, have exacerbated scrutiny of the bank's vulnerability to weaknesses in the commercial real estate market. As of Dec. 31, 2023, about 6% of the bank's $81.6-billion loan portfolio was made up entirely of rent-regulated multifamily loans, the bank said in its latest earnings report. "The good news is that this is very much unique to New York Community Bank in terms of the outsized exposure that they have to this asset class," Chiaverini said. "The 2019 regulation laws that became more onerous, combined with interest rates having gone up as much as they have — that double whammy is what led to the most recent quarter's surprise in terms of how much [New York Community] needs to set aside."At the end of last year, New York Community reported that it had about $18.3 billion of loans with rent-regulated exposure, about 14% of which were categorized as being at risk. In the fourth quarter, the bank took a $552 million provision for credit losses, up from $62 million in the previous quarter.Since 2019, rent-regulated property valuations in New York City have been cut in half, said Seth Glasser, a multifamily real estate broker at Marcus & Millichap. The Housing Stability and Tenant Protection Act, passed in New York state that summer, was a turning point for rent-regulated properties, according to Glasser. The law capped rent increases, limited the size of returns that landlords could earn for making renovations and eliminated eviction plans, among other provisions.Chiaverini said the five-year-old policy is squeezing net operating income at some rent-regulated properties, making it harder for borrowers when those loans mature in a higher-rate environment. While the costs of renovating and maintaining properties have increased, and rates have roughly doubled, rent increases have been forbidden, Glasser said. New York Community's newly appointed CEO, Alessandro "Sandro" DiNello, said last month that the bank would be "laser-focused" on reducing its commercial real estate concentration as quickly as possible. For rent-regulated multifamily properties, though, Chiaverini said there's no quick fix.Borrowers may not have the cash to pay down the principal on the prior loan, or to inject more equity into a refinanced deal, he said. That leaves banks to choose between bad options, including providing below-market-rate loans to their borrowers and potentially taking losses by foreclosing when property values are down. Glasser said that selling the loans isn't a great option either, because decreased proceeds and higher rates mean that such transactions would require steep discounts."The banks are saying, 'We're not taking haircuts on our loan. We want 100 cents on the dollar or 95 cents on the dollar,'" Glasser said. "But no one's willing to pay 90-plus cents … so none of the notes sell."Chiaverini said he also doesn't see loan sales as a viable option because of the discounts required for those transactions.At New York Community, Chiaverini expects the situation to play out slowly. More than 80% of the bank's loans on buildings in which all of the units that are rent-regulated will mature in 2025 or later, giving the bank time to build its reserves, he said. He expects the bank's first-quarter numbers to be less messy, though he added that it's a "low bar" in comparison with last quarter. New York Community's stock price fell another 23% on Monday after the bank's ratings were  downgraded on Friday by Fitch Ratings and Moody's Investors Service."New York Community, as opposed to seeing that outsized provision that they put up in the fourth quarter, they will gradually build the reserves, quarter by quarter," Chiaverini said. "It won't be a shock to the stock, but I think it'll be a headwind to the stock appreciating significantly in value, because other banks that aren't having this issue will be growing their earnings."New York Community did not respond to multiple requests for comment.At Valley National Bancorp, Webster Financial and Axos Financial, which also lend in the space, less than 4% of their total loan portfolios touch rent-regulated property. Banks have been pulling back from rent-regulated real estate lending, but those that are in the sector will be more conservative, likely decreasing their loan-to-value ratios, Chiaverini said. Travis Lam, deputy chief financial officer at New Jersey-based Valley, said the bank doesn't try to be competitive in the rent-regulated multifamily market. He said that it lends based on existing cash flows, which has made its prices less attractive than those available from other lenders. Valley's entirely-rent-regulated portfolio is $420 million, or less than 1% of its total loans. Some 3.6% of the bank's loans have a small portion of rent-regulated exposure."The reason that we only have $420 million of rent-regulated multifamily exposure is not necessarily because we have a view on the credit," Lam said. "It's because we're not competitive with some of the more aggressive players in the space from a pricing perspective, because we're conservative in the way that we underwrite."

Fannie Mae, a major investor and securitizer of mortgages made in the United States, has launched its first insurance-based credit-risk transfer in 2024, which introduces some changes to the program.For one, the credit-insurance risk transfer deal from Fannie Mae includes an identifier for single-family mortgage pools in certain loan-to-value ratio ranges. The letter "L" identifies covered loan pools with 60.01-80% LTVs while "H" earmarks those with ratios above 80%.CIRT 2024-L1, which shares risk on $9 billion of what are primarily 30-year prime-credit mortgages, also has a longer-term maturity than previous deals.The maturity term on the transaction is 18 years, as opposed to 12.5 for previous CIRT deals since 2019, Rob Schaefer, vice president of capital markets, said in a press release."We appreciate the support of the 24 insurers and reinsurers that committed to write coverage and supported the extension of the CIRT maturity term," he added, noting that he anticipates 2024 will be an "active" year.Under new program parameters, Fannie will retain risk on the first 150 basis points of loan in the covered loan pool. Reinsurers take responsibility for the next 395 basis points up to a maximum $355.6 million in coverage if Fannie absorbs a $135.1 million retention layer.Fannie acquired all the 28,000 loans in the cover pool between January and April of last year.Coverage is based on actual losses for up to 18 years, but the coverage amount could be reduced at the one-year anniversary of the transaction and each month after depending on the extent of the pool paydown and share of loans three months-plus past due or in foreclosure.Fannie can cancel coverage at any time after five years for a fee.In total, CIRT deals have provided Fannie with around $26.2 million in coverage on $879.2 billion in single-family loans since 2014, according to the press release.Fannie Mae doesn't include traditional private mortgage insurance in calculating the total for credit risk transfers, although single-family loans with high loan-to-values typically must have MI under the terms of its selling guide. CIRT and Connecticut Avenue Securities credit-risk transfers address losses not already covered by underlying mortgage insurance.As of Dec. 31, 2023, a total of $64 billion in CAS deals had been issued since the program's inception in 2013, according to a January investor presentation. These transactions transferred a portion of the risk on $2.1 trillion in single-family loans based on principal balance at issuance.In 2023 alone, Fannie executed 17 single-family credit risk transfer and CIRT transactions combined and transferred some of the credit risk on around $308 billion in principal loan balance at issuance, Chief Financial Officer Chryssa Halley said in a recent earnings call.CRT continues to play a key role in helping Fannie manage its credit risk at a time when it remains undercapitalized relative to its regulatory goals, CEO Priscilla Almodovar said during the call."We continue to manage our capital shortfall through retained earnings and our credit-risk transfer program," she said.

Mortgages can be viewed very differently.Some see them as a positive financial instrument, a way to free up their money so it can be invested elsewhere, ideally for a better return.Then there are those who view mortgages as the root of all evil, as a debt overhang that must be terminated as quickly as possible.Whatever your stance, you’ve probably entertained the idea of making “extra mortgage payments,” though you may not know the exact impact, due to the complexity of mortgage amortization.Fortunately, there are early payoff calculators available that take the guesswork out of the process and make it easy to see how much you can save in a number of different scenarios.Adding an Extra Mortgage Payment of $10 Per MonthEven adding a nominal amount such as $5 or $10On a monthly basis over a long period of timeCan save you thousands of dollars on your mortgageAnd shorten your loan term at the same timeLet’s start with a simple scenario where you add just $10 a month in extra payment to principal.Assuming you’ve got a $100,000 loan amount set at 4% on a 30-year fixed mortgage, that extra $10 payment would save you $3,191.81 over the full loan term.It would also shorten your mortgage by 13 months, meaning your 30-year mortgage would be a 28-year (ish) mortgage.So that’s good news, right? You save thousands and you only have to pay a measly $10 extra per month. You probably wouldn’t even notice the difference.What if you bumped up that extra payment to $25? Well, you would shave 32 months off your mortgage, nearly three years, and reduce total interest by $7,450.04.Feeling ambitious? Add $100 a month and you reduce your term by 101 months, or nearly 8.5 years, while saving $22,463.79 in interest.You can also just make your mortgage payments a solid round number and save money that way too.The world is your oyster really, so long as your loan servicer understands and accepts that these payments are to go toward the outstanding principal balance.Speaking of, make sure it’s very clear that any extra payments go to the right place. Often, you can’t make split payments, or payments for less than the total amount due.So any extra should be on top of the minimum amount due for the month.Some servicers will let you indicate where the extra should go, such as toward your escrow account or the principal balance.If your goal is to pay the mortgage down faster, you’ll want it to go toward the principal balance.Tip: If you can’t commit to the higher monthly payments associated with a 15-year fixed mortgage, extra payments could provide similar savings on a 30-year fixed.Extra Mortgage Payments Are More Valuable Early OnYou get more value out of extra mortgage payments early on in the loan termBecause the outstanding balance is larger at the outsetAnd early payments are composed mostly of interest (front-loaded)Any extra payments will lower future interest for the remaining months, which will be more plentiful if you make them during the early yearsAs you can see, it’s not that hard to save a ton of money via extra mortgage payments, but it also matters when you start making those additional payments.Using our $100 example, if you started making extra payments in year six of your 30-year mortgage (month 61), you’d only save $15,095.21, and shed just 78 months off your mortgage.Even if you procrastinated for just one year to initiate the extra $100 payment, your total savings would drop to $20,989.55, and only eight years would come off your mortgage term.In short, the earlier you start making extra payments, the more you’ll save. This is mainly because mortgage payments are interest-heavy in the beginning of the term.[Are biweekly payments a good idea?]One Extra Lump Sum Mortgage PaymentAn extra lump sum mortgage payment could be more valuableIf made soon after you take out your mortgageIts value diminishes over time since less interest is due later in the loan termBut it could be a better option than paying a little each monthNow let’s assume that you came upon some extra dough and want to make one lump sum payment to reduce your mortgage balance.Using our same loan details from above, if you made a one-time extra payment of $5,000 to principal in month 13, you’d save $10,071.67 and reduce your loan term by 31 months.Amazingly, this single extra mortgage payment would save you money each month for the next 30 years.Just look at the amount of interest paid each month after the extra mortgage payment is made versus the same home loan without extra payments below.As you can see, payment 14 above consists of $310.30 in interest, while it’s $326.96 for the mortgage without extra payments.In month 15, we see the same disparity, with $309.74 in interest versus $326.46. So each and every month after the extra payment has been made, interest savings are realized.Assuming the loan term is 360 months, it’s easy to see how the savings can really add up over time.Of course, the borrower who pays extra won’t have to make payments the full 360 months because they’ll also wind up paying off their mortgage ahead of schedule.Now I mentioned that paying extra earlier on in the loan term can save you even more because you can tackle that interest expense before you start paying it off naturally.For example, if you made that same $5,000 extra payment at the beginning of year six of the mortgage (instead of the beginning of year two), the total savings drop to $7,943.99 and the term is only reduced by 27 months.So again, it matters when you pay extra.Making an Extra Mortgage Payment Each YearSome homeowners prefer to make an extra payment each yearPerhaps related to a tax refund check or from a year-end bonus at workThis is another good strategy to cut your mortgage term and save lots of moneyAnd ensure that the bonus money you receive is put to good use as opposed to spent frivolouslyYou could also make one extra lump sum payment at the beginning of each year, perhaps after receiving your year-end bonus.So let’s say you make a $1,000 bonus payment each year in January, starting in month 13.That would save you $19,005.22 in interest and shave 85 months (just over 7 years) off your loan term.As you can see, there are all types of scenarios that abound here, and which one you choose, if any, is up to you.You might argue that mortgage rates are super cheap, and thus determine that making extra payments now makes little financial sense.Or you could be living in your dream home and not too far from retirement, with the hopes of living “free and clear” sooner rather than later.If that’s the case, making the extra payments now may be very appealing. Refinancing your mortgage to a shorter term could also make a lot of sense.Just remember that plans (always) change; homeowners are much more likely to move or refinance their loans as opposed to carrying them to term.So while the math might excite you, it may not actually pan out.How to Pay Extra on Your MortgageIf you’re looking to pay extra principal on your mortgage, it’s fairly straightforward. Though there are a few things to take note of to ensure it gets processed correctly.After all, the last thing you want is a missed or late mortgage payment when attempting to save some money.When you go online to make your regular mortgage payment, you should see a section labeled “Additional Payments” or “Additional Principal.”In this section, you can input any number you’d like beyond the minimum amount due, which is your regular mortgage payment.For example, if your payment is $3,316.27 per month, you can allocate additional principal with your payment, say $100.00.This would make your grand total $3,416.27, with the extra amount going toward paying down your loan balance ahead of schedule.It would save you interest over the rest of the loan term, but it wouldn’t lower future payments. Any remaining payments would still be $3,316.27 per month.Also note that you might see the option to pay extra toward your escrow account, assuming there’s a shortfall or an expected one. This has nothing to do with paying your loan down faster.For those paying by phone, explain to the representative exactly what you’re trying to accomplish, with any overage going toward the principal balance.And if you happen to be paying by mail, there might be a section on the payment coupon regarding additional principal. Simply write in the amount you want allocated.What About Partial Mortgage Payments?An option to make a partial payment could also be listed on your loan servicer’s payment page, but this differs from paying extra.Typically, this option is for those who are behind on their mortgage and looking to catch up.And it often results in the money being held aside until enough for a full payment is allocated.For example, if you make a $1,000 partial payment it might be put in a “suspense account” until the remaining $2,316.27 is sent (using our same payment example from above).In some cases, the money could simply be returned to you if it’s not the full amount due.I suppose it could also be utilized for biweekly payments, assuming the servicer accepts that arrangement.The key here is to ensure you make at least the minimum payment before paying any extra. And verifying that it’s allocated correctly.If you’re not sure, it might be best to contact your loan servicer directly to confirm payments are made as expected.Even if you are “sure,” it could be helpful to verify with the servicer before paying any amount other than the amount due.Read more: Should you pay off the mortgage early?

(Bloomberg) -- D.E. Shaw is among hedge funds buying exposure to so-called blind pools of risk sold by banks looking to reduce their regulatory burdens.The quantitative investing giant has been using its private credit funds, primarily Diopter, to assume the risk of loan portfolios that have scant borrower information but provide details about the types of loans and their credit quality, according to people familiar with the matter.D.E. Shaw is purchasing credit-linked notes sold by banks that transfer the risk to the buyer in exchange for a coupon payment, while keeping the assets on the lender's balance sheet. Banks have been pursuing these types of transactions, known as synthetic risk transfers, as they seek to lower their exposure to loan portfolios and reduce the amount of capital they must hold against assets under stricter regulations. The Federal Reserve gave further guidance about how banks could pursue such transactions to lower their capital requirements — helping unleash a flurry of deals in the wake of a financial crisis that felled several regional lenders last year. The biggest Wall Street firms have also been using risk-transfer deals to opportunistically lower their regulatory capital burdens.Read More: AT1 Shockwaves May Prove a Boon to Niche Area of ABS MarketRisk transfers generally fall into blind and disclosed pools, with the latter providing loan-by-loan information including the identities of the underlying borrowers, which allows the purchaser to underwrite the value of the portfolio. Blind pools reveal some particulars about the loans, such as their size, maturity date, industry and whether they're secured or unsecured — but they don't reveal the borrowers. Data ScienceD.E. Shaw, a quant pioneer with about $60 billion of assets, is using its data and algorithmic capabilities to analyze the less-transparent bundles of loans, the people said. Using data science, it cross-references the details in the blind pools with swaths of publicly available data to help identify the borrowers, assess risk and better price the deals. A representative for the New York-based firm declined to comment. Asset-based lending has emerged as a hot corner of the credit market, with major firms pursuing alternative investments that potentially offer steady cash flows and protection if defaults spike. The portfolios can include auto loans, credit card receivables, mortgages and other bundles of loans.Disclosed pools are popular with alternative-asset managers with large credit-investing arms that can underwrite the deals.D.E. Shaw, founded in 1988 by computer scientist David Shaw, has been making bank-issued synthetic securitization investments since 2007 as part of its human-run credit wagers. The firm has about $3 billion invested in, or committed to, private credit funds.In late 2022, D.E. Shaw raised more than $650 million for its Diopter fund, which focuses on risk transfers, and deployed most of the cash that year. In 2021, it raised $1 billion for another private credit vehicle, Alkali Fund V, which invests in stressed and special situations investments. The firm is now fundraising for Alkali Fund VI. --With assistance from Dan Wilchins.More stories like this are available on bloomberg.com