2016 Changes to our Collateral Verification Process
February 3, 2016
We are writing to you today to provide clarity and transparency regarding changes we are making to our collateral verification process beginning in 2016. Most financial institutions have received increased regulatory pressure over the past several years. FHLBank has received and continues to receive similar scrutiny and pressures from its regulator, the Federal Housing Finance Agency (“Finance Agency”). As a result, we are enhancing our collateral verification risk management framework. It is our desire to meet the Finance Agency’s expectations in the most efficient and responsible manner possible, with the least possible impact to our membership.
The following is a summary of changes to our collateral verification processes impacting you in 2016:
- Increased number of loans reviewed during a collateral verification to ensure statistical integrity.
- Members pledging 500 or more loans on our Qualifying Collateral Determination (QCD) form will see an increase in the number of loans our Collateral Analysts review onsite up to a maximum of 102 loans, plus a review of your five largest pledged loans based on the unpaid principal balance (UPB) of the loans.
- Members pledging less than 500 loans on our QCD form will continue to have a review on their five largest pledged loans based on the UPB of the loans and will see no change to the random 10 percent sample selection.
- Reporting requirement to identify loan level data for loans reported on the QCD form.
- Members will be requested to complete the QCD Loan Support template to identify loan level detail for loans reported on the QCD form. Our Collateral Review Analyst will request that you submit to us loan data detail on the QCD Loan Support template prior to completing a collateral verification. We will need you to maintain the QCD Loan Support template for all loans pledged when reporting via the QCD form going forward. We are asking for this additional loan data in order to improve the overall transparency of the loan collateral pledged and to provide additional support for the assumptions used in determining the lending values assigned to each asset type, which is a key objective of the Finance Agency. Our QCD Loan Support template is available on the Collateral page of the Members Only website.
We recognize that many members will need to undertake technological and operational changes in order to meet the new data requirements of the QCD Loan Support template. Your institution hasn’t been selected for a 2016 review, but we encourage you to begin addressing the implementation of our new data requirements in advance of FHLBank scheduling a collateral verification. We understand that our request for additional loan level data is not without its challenges, and we remain committed to assisting you with any difficulties that may arise.
We value your membership in FHLBank and look forward to providing you access to an array of flexible funding options for mortgage lending, liquidity, asset/liability management and community investment needs. If you have any questions about these changes, please contact Tom Bliss, Vice President and Director of Member Credit Analysis at 800.809.2733 ext. 6057, or Kylie Mergen, Assistant Vice President and Collateral Review Manager at 800.809.2733 ext. 6266.