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Increase lending capacity

Many financial institutions have excess liquidity due to the global pandemic and resulting economic stimulus. Management can deploy this liquidity into new loan originations or the investment portfolio. Although bond returns are better than cash, a more attractive return may be provided from mortgage loans. This opportunity also presents a new dilemma: if a financial institution increases 15 and 30-year mortgage lending, it may lead to excessive interest rate risk.

Term funding from the FHLB can ‘match fund’ these mortgage loans, however that may result in higher funding costs, a ballooned balance sheet, and an adverse impact on capital ratios. Are there alternatives?

Swaps provide financial institutions a tool to increase mortgage lending while managing rate risk

Here's how:

  • Generate and portfolio 15- and 30-year mortgages
  • Identify a “pool” of mortgage loans to hedge
  • Use a pay-fixed swap to effectively convert the last layer of the pool of mortgages to floating
  • The swap can start today or in the future, allowing the financial institution to customize the risk mitigation to its risk profile
  • The pool can include any prepayable fixed-rate asset (bond, loan, or mortgage)


  • Offer additional products, e.g., 30-year jumbo mortgages or 15-year fixed-rate loans to business account holders
  • Retain existing and gain new account holders through additional product offerings
  • Offer products regardless of the rate cycle
  • Low capital requirements mean minimal impact on capital ratios
  • Produce smoother net income

Chatham’s end-to-end Balance Sheet Risk Management solution provides the tools needed to manage interest rate risk. Our experts collaborate with clients to identify the best strategy given their unique risk profile, views, and desired outcomes.


  • Led by a client relationship manager who provides hedging advisory guidance and delivers the deep resources of our Financial Institutions team.
  • Supported by a hedge accounting team with each client having a dedicated hedge accountant who helps with all the required initial documentation and ongoing testing.
  • Backed by a regulatory/ISDA team to help negotiate derivatives documentation and keep our clients up to date on regulatory changes.


  • A collaborative approach to hedging decisions from strategy identification to execution to accounting.
  • A proven ERM framework covering controls, processes, and regulatory compliance including SSAE-18 audit.


  • Our online platform, ChathamDirect, is a modern, scalable, secure cloud platform.
  • ChathamDirect provides efficient structuring, origination, and servicing for your entire derivatives program, backed by our market-leading processes, controls, and built-in Dodd-Frank compliance.

We'd like to hear from you

Contact us to understand how your financial institution can use interest rate swaps as a tool to increase mortgage lending while managing rate risk.

About the author

  • Ben Lewis

    Managing Director
    Head of Sales

    Financial Institutions | Denver, CO

    Ben Lewis is a Managing Director and Global Head of Sales for our Financial Institutions team. He leads business development efforts in the Western U.S. and works with depositories helping them manage interest rate risk.


Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.