More on Upcoming Changes to the Line of Credit Product
November 12, 2020
We recently announced some changes as a result of a comprehensive review of our products and pricing methodology. This message will share more details on the changes related to our Line of Credit (LOC) product.
What is changing?
Our review noted that some of the documentation related to our LOC suggests drawn funds are guaranteed for the full term of the LOC commitment, which is currently a year. Under Federal Housing Finance Agency regulations that govern our advance pricing, a materially higher rate would be required than the overnight rate we’ve traditionally charged on LOC.
Consequently, we are rolling out a new product called the Overnight Line of Credit (OLOC) on Jan. 4, 2021, to give members pricing consistent with overnight funding. The new OLOC will still allow daily draws and paydowns and be priced the same as our old LOC with the understanding the advances mature daily.
If we didn’t add this new product, the rate on the LOC would have to be in line with a 1-year term with a daily call option (your option to paydown each day). This would mean we’d have to increase the rate on the LOC by about 50 basis points. That would make the rate 0.86% versus the current rate of 0.36%. We always manage FHLBank to ensure the availability of liquidity at all times; however, we never intended the LOC to be a product where the outstanding funds were guaranteed for a 1-year term.
We decided that a more member-friendly option would be to shift all existing balances to the new Overnight Line of Credit and amend our policies to reflect that the funds are truly overnight and mature daily. This allows you to use the OLOC in the same manner as the former LOC with the same pricing.
Do I need to do anything?
This change requires no action on your part. On Jan. 4, 2021, any outstanding balance on your Line of Credit will automatically be transferred to the new Overnight Line of Credit. If you prefer that your outstanding balances not be transferred to the OLOC, let us know by Dec. 31.
Q. What is the Line of Credit 1-year commitment and what will the new Overnight Line of Credit Confirmation look like?
A. The Line of Credit commitment was a document we provided you each year indicating that you would have access to the Line of Credit for the next year. The new Overnight Line of Credit commitment is only provided initially in conjunction with the new product offering and will reflect the new terms, indicating that the funds are overnight and mature daily.
You will still have the same access to funds and funds will be available as they always have been with the old Line of Credit. Additionally, members submitting Overnight Line of Credit draws via Members Only will acknowledge the daily maturity upon submission of the draw request.
Q. Do I need to call in daily to reaffirm my outstanding balance?
A. No. You only need to contact us if you want to draw additional funds or paydown. Just as with the old Line of Credit, funds drawn will remain outstanding until you tell us you’d like to paydown. You can still draw or paydown via Members Only or by calling the Lending Desk.
Q. Does the new Overnight Line of Credit have a resting or layout period?
A. No. The Overnight Line of Credit, as with the old Line of Credit, doesn’t require you to pay off balances and “rest” or “layout.”
Contact your regional account manager or the Lending Desk at 800.809.2733 with questions.