Executive Summary West End Savings Bank Strategic Pit Stop

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Understanding the Lender Risk Account (LRA)
presented by Jon Griffin, CFA Vice President,
Credit Services Director
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Lender Risk Account
What is the Lender Risk Account?

• MPP credit losses are absorbed in the following
  order
• Borrower equity
• Private mortgage insurance
• Lender Risk Account
• Supplemental mortgage insurance
• FHLBI
• The Lender Risk Account (LRA) provides MPP
  participants with the opportunity to create an
  annuity of fee income
• Non-interest bearing account
• The LRA builds over 5 years and after the 5th
  year the excess over the threshold is paid out
  
• LRA is dissolved after 11 years

www.fhlbi.com
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Lender Risk Account
LRA Modeling Assumptions

• MPP sale is a single 10 million transaction
• 6.25 WAC mortgages (80 - 30 year and 20 - 15
  year) are sold to MPP
• LRA funding level of 0.07
• Release point of 0.30
• 5 year lockout, 11 year liquidation
• Discount rate of 8.0
• Prepayment speeds of 6, 12 30 CPR
• Annual LRA distribution
• Assumes all loan losses occur uniformly until
  year 11, after which LRA becomes a pass
  through to the seller

www.fhlbi.com
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LRA Value by Loan Loss Prepayment Assumptions
Lender Risk Account
www.fhlbi.com
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