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November 2, 2020 Changes to Schedule of Eligible Collateral, including more on eNotes

On Friday, October 30, 2020,  we shared a summary of some product changes occurring in the coming months. In this message, we are highlighting changes to our Schedule of Eligible Collateral that were approved by FHLBank Topeka’s board of directors last week. Details are available via the online Member Products and Services Guide (MPSG).

Please note, policy changes to the Schedule of Eligible Collateral on pages 72-112 will become effective January 4, 2021. Lending values for collateral that has been delivered to FHLBank or an FHLBank-approved third-party custodian will be effective on January 4, 2021. Lending values for loan collateral reported via the Qualifying Collateral Determination (QCD) form will be effective with the filing of the March 31, 2021, QCD form.

Given all the challenges members are currently navigating in the existing operating environment, the board of directors delayed the typical cadence of the effective date of these changes to allow members more time to review their portfolios for eligible collateral. Until the changes are effective next year, you will find two versions of the MPSG on our site – the current version as well as the version that goes into effect on Jan. 4.

Underwriting and Lending Value Changes
eNotes will be eligible for pledging within the various one-to-four family residential real estate property categories (conventional mortgages, FHA-insured mortgages, VA-guaranteed mortgages, and held-for-sale mortgages), as well as second mortgages on one-to-four family residential real property. Pledging is subject to FHLBank prior approval, which will include the completion of the eNotes Readiness Checklist. For more information on eNotes, please visit our eNotes landing page.

After re-assessing our underwriting requirements related to amortization and working with several members on various case-by-case collateral acceptance reviews, management updated the amortization provision for mortgages on multifamily residential real property and commercial real estate to accommodate interest-only payment features of seven years or less. Please note there was also a slight change to update the amortization provision for agricultural real estate.

During the annual review of lending values assigned to each asset within the Schedule of Eligible Collateral, management made some adjustments to various lending values. Nearly all of the changes were made within Collateral Type: II Securities. However, please note that there was a lending value reduction to zero related to Collateral Type: IV. Other Real Estate-Related Collateral for Multifamily Construction Mortgages and Commercial Construction Mortgages, given credit concerns and the negative outlook with these two asset categories.

See a detailed list of the upcoming lending value changes.

If you have any questions about any of these changes, please contact Lance Liby, chief credit officer, at 785.478.8140, Tom Bliss, director of member credit analysis, at 785.478.8149 or Kylie Mergen, director of financial services, at 785.478.8203.

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