Collateral Update for Nebraska Members
July 12, 2018
We continue to answer questions from Nebraska members about the eligibility of real estate loans pledged with deeds of trust with unlimited future advance language. We want to provide further clarity and direction on the issue. To date, FHLBank has viewed deeds of trust with unlimited future advance language as eligible collateral as long as the current unpaid principal balance did not exceed the recorded deed of trust amount. In the event the current unpaid principal balance exceeded the recorded amount, the loan was deemed ineligible given the underwriting requirement that states, “The mortgage amount must equal or exceed outstanding principal amount on the note.” The unlimited future advance language makes it difficult to ascertain a value for the amount of the deed of trust, which has created a challenge for members to comply with the underwriting requirement identified in the Schedule of Eligible Collateral in FHLBank’s Member Products and Services Guide.
Given the member feedback we have received on this matter, we are currently evaluating the unlimited future advance issue. We have requested and received an outside legal opinion from a reputable firm in Nebraska. We are evaluating the conclusions, with assistance from our internal counsel, to determine eligibility and ensure any additional requirements are prudent and beneficial. We hope to resolve this issue to allow our members to maximize their lending value. We will keep you apprised of new developments as they occur.
If you have any questions, please contact Lance Liby, Chief Credit Officer, at 785.478.8140 or Kylie Mergen, Director of Financial Services, at 785.478.8203.