Updates to Collateral Practices
Please review the information on this page to ensure your institution is aware of our Bank’s recent updates to collateral practices. All updates noted below were put into effect on October 2, 2017.
If you have any questions, please reach out to the Collateral Team or check out our Frequently Asked Questions:
800.544.3452, ext. 5408
Revised Loan-to-Values (LTVs) for affected loan and security collateral categories were implemented on October 2. Changes were made to ensure all LTVs are consistent with the current market environment. View Revised Loan and Securities LTVs Here.
Single Level Haircut
FHLB Des Moines has changed our underwriting assessment methodology and is simplifying the application of our LTV (haircut) administration from a two level haircut structure to a single haircut. Going forward any impact to the lendable value of pledged collateral resulting from loans not meeting underwriting assessment requirements during a Member Collateral Verification (MCV) will be reflected in an adjustment to the Eligibility Factor (EF) rather than a lower haircut level.
Adjusted Eligibility Factors
As noted above, eligible loans not meeting the requirements in our Underwriting Assessment Matrix (UAM) will be discounted via an adjustment to the Eligibility Factor. The EF will then be the ratio of eligible loans to total loans in a randomly selected sample of pledged loans plus an adjustment for loans not meeting UAM requirements. The EF is applied as an adjustment to the unpaid principal balance (UPB) of pledged collateral; the type code’s haircut (LTV) is then applied to this adjusted UPB to determine advance equivalency. Additionally, the UAM has been simplified to reflect fundamental underwriting documentation for borrower repayment capacity, credit history and collateral valuation. View Revised Matrix Here.
You will not see any change to advance equivalency due to the changes in the Eligibility Factor calculation until your next MCV. Changes to advance equivalency on October 2 will solely be a result of LTV Updates.
Updated Eligibility Guidelines
Conventional 1-4 family residential loans/lines exceeding the following loan-to-value thresholds without assignable mortgage insurance are ineligible, unless permitted by the member’s primary regulation:
- 90 percent (owner occupied)
- 85 percent (non-owner occupied and 1-4 Family First Mortgage Construction Loans)
This update impacts the following type codes: 1101, 1102, 1103, 1414, 1423, 1424, 1431, 1461, 1561
Exception: Members demonstrating regulatory compliance for loans in excess of the following limits may continue to pledge loans up to 100 percent LTV provided:
- Banks/Thrifts: Compliant with Supervisory LTV monitoring and limitations.
- Credit Unions: Compliant with internal policy limits and monitoring if required by National Credit Union Association (NCUA) supervision.
As a Reminder
- Depository Members: collateral property valuations must comply with all primary regulator rules and regulations. Members pledging loans based on Tax Valuations and Automated Valuations Models must ensure documented validation and correlation analysis to market value consistent with the Interagency Appraisal and Evaluation Guidelines Appendix B - Evaluations Based on Analytical Methods or Technological Tools.
- Non-depository Members: Valuation must be based on certified appraisal unless prior arrangements are made (no change to existing eligibility criteria).
- Collateral Property(s) use must comply with all federal, state and local laws and regulations (e.g. marijuana dispensaries are not eligible collateral owing to federal prohibition).