FHLBank Approves Changes to the Member Products Policy
October 31, 2017
At its recent meeting, FHLBank Topeka’s Board of Directors approved changes to its Member Products Policy. Details are available in the online Member Products and Services Guide (MPSG). Policy changes become effective Dec. 1, and lending values for loan collateral reported via the Qualifying Collateral Determination (QCD) form will be effective with the filing of the Dec. 31, 2017, QCD form.
Schedule of Eligible Collateral Changes
Loan Section
- Cross Collateralization Allowed between Operating Loans and Ag Real Estate Loans – Stockholders holding operating loans secured by crops and/or livestock in combination with ag real estate loans can now pledge these loans as eligible collateral. Sufficient equity must exist in the ag real estate loan transaction to permit cross collateralization, up to a maximum of 85% loan-to-value, as indicated below.
- Ag Real Estate Loans – The maximum loan-to-value (LTV) requirement for ag real estate loans has been lowered from 100% to 85% to mitigate the risk of downward trends in property values in the district over the past several years and to account for the current tepid outlook. This aligns with regulatory guidelines and with many of the other maximum LTV requirements on other types of eligible loan collateral.
- Second Mortgages on One-to-Four Family Loans – The underwriting language was changed for second mortgages to more clearly state that the second lien position should be evidenced by title insurance or a title opinion.
- Interest Only Operating Loans – The term for eligible interest only operating loans was increased from 15 to 18 months. This change aligns with the underwriting requirement for the USDA Farm Service Agency program.
Securities Section
- U.S. Treasury Bills (T-Bills) – T-Bills were previously included with fixed rate U.S. Treasury Bonds, but were put into a separate category to recognize the structural differences, interest rate sensitivity and discounted pricing that exists between T-Bills and U.S. Treasury Bonds.
- Fixed Rate U.S. Treasury and Agency Notes and Bonds, Principal-Only and Interest Only – U.S. Treasury and Agency notes and bonds that are fixed rate and either STRIPS (Separate Trading of Registered Interest and Principal of Securities) or zero-coupon have been added as eligible collateral.
Lending Value Changes
Secured credit risk exposure arising from the extension of credit to members and nonmembers is managed by employing multiple strategies and processes, known as FHLBank’s Member Credit Methodology (Methodology). One component of the Methodology is periodic evaluation of the lending value assigned to each type of asset. Based on management’s recent review of the lending values under its Methodology, various lending value changes were made. Click the link below for a detailed list.
Lending Value Changes
If you have any questions about these changes, please contact Lance Liby, chief credit officer or Tom Bliss, director of member credit analysis at 785.233.0507.