FHLBank Approves Changes to the Member Products Policy
September 28, 2015
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 Oct. 1 and lending values for collateral reported via the Qualifying Collateral Determination (QCD) form will be effective with the filing of the Dec. 31, 2015, QCD form.
Policy Changes
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Collateral Fees Eliminated – the collateral fees associated with pledging student loan asset backed securities and commercial mortgage-backed securities (CMBS) have been eliminated as a result of improved processes and efficiencies. The fees being eliminated include an initial review fee of $125 per CUSIP for both security types and a $100 quarterly cash flow evaluation fee per CUSIP for CMBS.
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Limitation Eliminated – the restriction that state and local government securities could only be used to collateralize letters of credit has been eliminated. These securities may be used to collateralize any type of credit obligation, as long as: (a) prices are readily available through the FHLBank’s pricing vendor; (b) securities are rated AA or better; and (c) the prospectus provides a detailed breakdown on the amount of bond proceeds used for real estate related purposes. The securities will be reviewed on a case-by-case basis and the amount eligible will be limited to the proportion of bond proceeds used for real estate related purposes.
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New Underwriting Requirement – an underwriting requirement has been added to second mortgages on residential one-to-four family property requiring any loan reported under this asset category to be fully disbursed (closed end loans only, no revolving lines of credit). This underwriting requirement was added to clarify that revolving lines of credit should not be reported in this asset category.
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Underwriting Requirement Modified – an underwriting requirement for multifamily and commercial real estate loans has been modified to indicate that management may allow loans to be pledged that have debt service coverage ratios (DSCR) less than 1.25 if the loan is fully amortizing over a shorter time period (less than 20 years). This modification will prevent loans from being ineligible when shorter contractual terms result in a lower DSCR.
Lending Value Adjustments
Lending values for various types of collateral are being adjusted to reflect the application of our secured member collateral methodology, which is the periodic evaluation of the lending value assigned to each type of asset. The secured member collateral methodology includes factors for credit, market volatility and liquidation costs.
it, market volatility and liquidation costs.
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Asset Classification
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New Lending Value
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Previous Lending Value
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FHA-insured mortgages, not more than 90 days delinquent
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94% (unpaid principal or market value)
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90% (unpaid principal or market value)
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FHA-insured mortgages, more than 90 days delinquent
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90% (guaranteed portion)
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86% (guaranteed portion)
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Mortgages on multifamily residential real property
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77% (unpaid principal or market value)
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65% (unpaid principal or market value)
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Commercial mortgage backed securities less than 100% defeased
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AAA – 88% (market value)
AA – 79% (market value)
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AAA – 91% (market value)
AA - 82% (market value)
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Multifamily construction mortgages
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52% (unpaid principal or market value)
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30% (unpaid principal or market value)
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Commercial construction mortgages
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52% (unpaid principal or market value)
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30% (unpaid principal or market value)
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Operating loans (crops and livestock)
ELIGIBLE TO ONLY CFI MEMBERS
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58%(unpaid principal or market value)
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61% (unpaid principal or market value)
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Student loans
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82% (guaranteed portion)
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85% (guaranteed portion)
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Non-Depository Community Development Financial Institutions (CDFIs) Only
New Maximum Term on Credit Obligations for CDFIs – CDFIs’ credit obligations (advances, letters of credit, draws on standby credit facilities, exposure on derivatives and MPF Credit Enhancement Obligations) are now limited to terms of two years or less without prior written approval from FHLBank senior management. This change allows FHLBank the opportunity to conduct a volatility review of the eligible collateral held by the CDFI, specifically the potential volatility of the collateral value over a longer time horizon.
If you have any questions about these changes, please contact your regional account manager or the Lending Desk at 800.809.2733.