Plymouth Savings Bank is among the participants in MassHousing’s third-party origination program.

MassHousing’s third-party origination program may not be its most popular product, but it has reached a level of success on its third anniversary that has allowed mortgage brokers to tap into this attractive option for first-time homebuyers.

The program is not overwhelmingly popular, comprising just 3 percent of the agency’s loan volume for the year. It has met its objective, however, bringing first-time homebuyers closer to the lower rates available through MassHousing – formerly the Massachusetts Housing Finance Agency – by allowing mortgage brokers who transact the bulk of the mortgage originations to access the loans.

I think it’s going fine, said Executive Director Thomas R. Gleason. We started the program late in 1998 and it hasn’t been a huge producer of mortgages for us, but the mortgages are of fine quality, just like any other loans that we would purchase from any participating lender, he said.

The TPO program is available to mortgage brokers and lenders that do not meet eligibility requirements to become MassHousing lenders, mostly because of net worth and approved seller/servicer status with Fannie Mae or Freddie Mac. The TPO is allowed to submit mortgage loans to the agency through an approved lender, such as a bank. The mortgage loan is sold to MassHousing through the approved lender.

The first loan made through the program on Jan. 15, 1999, was by Conway Financial Services. Today Conway is the top producer of TPO loans at MassHousing with 25 of the 50 loans made last year.

This has been such a wonderful opportunity for us, said Carol Bulman, president of Norwell-based CFS. She also served on the steering committee that first explored the TPO program.

At one time, MassHousing had one standard loan product that only certain approved banks could originate. We thought it was important several years ago, that we needed to change to be more in line with the way the conventional mortgage market was operating … More and more loans are being originated by people who, I guess, you would call nontraditional lenders. We felt that we needed to change to keep pace with the times, said Gleason.

But to keep its institutional investors happy, as well as to protect itself, MassHousing established that loans could only come through approved lenders and set the standard for approval as those that were Fannie Mae or Freddie Mac seller/servicers.

The reason why we like to have it come to us through an approved lender is that those lenders have a higher standard of financial net worth that they have to be responsible for. In case something goes [wrong] with one of these loans, we have somebody to turn to who has more net worth than a third-party originator might have, said Gleason.

‘Important Market’
The national standard chosen was both easy to understand and applicable across the board without any argument, said Gleason. However, it left most mortgage brokers out. But through the TPO program over 40 mortgage companies are approved through relationships established with over 100 MassHousing approved banks across the commonwealth.

So MassHousing would never be dealing directly with the brokers. It would be a true third-party arrangement, said Eric Gedstad, spokesman at MassHousing.

That gave MHFA the comfort level as far as risk, said Bulman. It’s just been a wonderful relationship. We do quite a few MHFA loans. It’s an important market for us to the real estate company and the mortgage company.

The 25 loans originated last year by CFS through its relationship with Plymouth Savings Bank total about $3.4 million.

It’s not a significant volume, but that’s not what the issue is. The issue is we need to be able to service all customers, and it’s an important product to have in our menu, she said.

While CFS garners fee income from the transaction, the more important benefit of involvement in the program comes from increased exposure in the marketplace, Bulman said. [It’s] being able to say to our broker/real estate agent partners and our customers that when you come to CFS, you don’t have to go elsewhere if you’re interested in looking into an MHFA loan, she said.

We felt it was a very good program for the first-time buyers and the housing market, said Howard Miselman, owner of Continental Funding in Stoughton, which also partners with Plymouth Savings to offer MassHousing loans.

Although Continental does only about a handful of loans through the TPO program, said Miselman, he still feels it’s an important product to offer and thinks in the future more banks may be interested in partnering with mortgage brokers.

Banks that don’t use the program are probably satisfied with the volume of loans generated through their own retail presence, but Plymouth is able to extend its reach, he said.

We felt it was just the right thing to do, not only for people that sell us loans but also as a community-oriented bank, said George DeMello, vice president in charge of correspondent lending at Plymouth.

The bank currently does business with four TPOs but we’re very selective about who we do do business with, because it is a very tight relationship you want to have with those companies, he said. DeMello was also part of the original group that determined the parameters of the program.

DeMello anticipates the program will continue to grow because of the interest rate environment and the need in the marketplace.

Massachusetts is an expensive place to buy housing. And with the minimum requirements they have for down payment and the attractive interest rates that MHFA is able to provide to people, I think the program will be used an awful lot more than what is being used now, he said.

He describes the program as a collaborative effort between investors at MassHousing, banks and mortgage brokers who are in the frontlines of the marketplace, to provide homeownership to people.

It’s good business for us because it allows us to expand our reach to get more people originating MassHousing mortgages and makes the mortgage process a little bit easier for a homebuyer, said Gleason. We think it’s a good practice for our participating lenders to use third-party originators because it helps them originate more mortgages, so it works both ways.

But while the program is working well, it may come under closer scrutiny if a bill to extend Community Reinvestment Act requirements to mortgage companies passes. Currently banks receive CRA credit for loans extended through TPOs.

One of our arguments when we went to the Legislature with our concerns is it’s a difficult thing to track, said Bulman, who noted that she’s not adverse to mortgage brokers doing business in the CRA arena. One of the issues of the CRA bill is you have that double booking of a CRA eligible loan. So in other words, if I’m a mortgage company and I originate an MHFA loan, then I sell it to Plymouth who is my sponsor lending institution, they also get credit, she said. If the bill is passed, mortgage brokers would need to be able to access MHFA and other CRA-related products more directly.

MassHousing has not taken a position on the bill, said Gleason.