To All Members:
FHLBank Indianapolis has several collateral updates regarding SBA Paycheck Protection Program (PPP) loans and private-label mortgage-backed securities. These updates are provided below.
SBA PPP Loans
In a collaborative effort to support our members who seek access to the Federal Reserve Bank’s (FRB) Paycheck Protection Program Lending Facility, FHLBank Indianapolis has subordinated its priority lien interest in PPP loans pledged as collateral to the FRB of Chicago, FRB of St. Louis, and FRB of Minneapolis. Each FRB has also subordinated its interest in any PPP loan that may be pledged to FHLBank Indianapolis in the future.
Currently FHLBank Indianapolis does not accept PPP loans as collateral largely because the SBA guarantee does not transfer to the FHLBanks; however, in a supervisory letter dated April 23, 2020, the Federal Housing Finance Agency established a set of conditions under which the FHLBanks could accept PPP loans as collateral. Based upon the receipt of this supervisory letter, FHLBank Indianapolis has taken into consideration the potential future acceptance of PPP loans as collateral, and we will provide an update to our members once a decision has been made. Please contact your Account Manager if you are interested in pledging PPP loans as collateral.
Private-Label Mortgage-Backed Securities Collateral
FHLBank Indianapolis has updated the Collateral Procedures & Selection Criteria document, which will impact private-label residential mortgage-backed securities (RMBS), private-label commercial real estate mortgage-backed securities (CMBS), and private-label home equity-backed securities collateral.
In March, a rapid and significant widening occurred between market values of pledged private-label MBS securities collateral and active trading values. While the widening seems to have subsided, market prices of these types of collateral have not returned to previous levels. FHLBank Indianapolis is taking actions to limit future exposure in the event of a repeat occurrence. Effective May 15, 2020, FHLBank Indianapolis will begin capping market prices of AAA private-label MBS collateral at 104.5; all lower NRSRO-rated private-label collateral will be capped at par. An individual member pledging high volumes of private-label CMBS may also be subject to increased over-collateralization requirements for those CMBS.
In addition, risk-retention bonds and CMBS CLOs (Collateralized Loan Obligations) have been added to the list of security types that are ineligible collateral. The updated Collateral Procedures & Selection Criteria document is available on Member Link.
If you would like to discuss changes to the Collateral Procedures & Selection Criteria in more detail, contact your Account Manager, or Andy Tomamichel at either email@example.com or 317-465-0334.