Getting the Most Out of Your Collateral Opportunities
November 2014 - FHLBank Atlanta continually seeks to develop new products and services that help shareholder institutions manage their balance sheets and grow their businesses. Another part of helping shareholders maximize the value of their cooperative is enabling them to manage their borrowing capacity so they can take advantage of the many product opportunities the Bank offers. As such, the Bank has consistently expanded collateral eligibility in response to shareholders’ business needs and changes in the mortgage markets and regulatory environment.
In the last 12 months, the Bank has introduced a new collateral initiative for residential mortgages held for sale in the secondary market. It has also determined initial eligibility guidelines for residential loans in response to the Qualified Mortgage (QM) loan provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These actions followed other expansions in commercial loan and residential mortgage eligibility implemented between 2011 and 2013.
Residential Available for Sale
Launched in February 2014, FHLBank Atlanta’s Residential Available for Sale (RAFS) enables shareholders to establish lendable collateral value on their pipeline of closed residential 1-4 family mortgages awaiting sale into the secondary market. It is an ideal source of mortgage warehouse funding during periods of higher residential loan demand. Because RAFS collateral is added to an institution’s overall borrowing capacity, shareholders can use the additional collateral value to secure any advance product the Bank offers and receive standard pricing. Additionally, the Bank does not require participating shareholders to deliver mortgage documents to access funding. Click here for more information on RAFS.
Qualified Mortgages and Non-Qualified Mortgages
In January 2013, the Consumer Financial Protection Bureau adopted a rule that implements the ability to repay and Qualified Mortgage (QM) provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule provides safe harbor for originators of QM loans. The rule became effective for essentially all closed-end residential mortgages, both first and second lien, secured by structures containing 1-4 units for which an application is received on or after January 10, 2014. The rule has the effect of dividing residential mortgages into QM or non-QM loans, and financial institutions must designate all newly originated residential mortgages as either QM or non-QM.
FHLBank Atlanta currently accepts both QM and non-QM loans as eligible collateral. The Bank will continue to monitor evolving conditions in the mortgage market to determine if QM and non-QM eligibility or valuation methodologies need to be revised.
Special Purpose Properties
In 2011, FHLBank Atlanta significantly expanded the types of special purpose properties that receive value in a commercial real estate (CRE) portfolio. It is now possible to receive Lendable Collateral Value on a large portion of commercial real estate loans that were previously ineligible.
Accepted special purpose properties include a wide variety of property types including:
Car Wash Facility
Clubhouses and Pavilions
College, University or school
Golf Courses and Driving Ranges
This is a small sample of property types that are eligible special purpose properties. Please contact your collateral relationship specialist for more information.
Accepted full market value commercial properties include retail, office, and hotel/motel buildings, as well as other properties such as:
Industrial – warehouse, distribution, R&D, flex and other light industrial
Places of Worship with loan-to-value < 50%
Assisted Living Facilities, Nursing Homes, Retirement Homes
Daycare centers (pre-school on site is permitted)
Veterinarians and animal hospitals (may include kennels, dog runs)
Mini or self-storage facilities
Top 10 Stand Alone Restaurants based on sales revenue or units operated
For information additional information on special purpose property eligibility, read the July 2013 Strategies for Growth article.
In addition, the Bank has made it easier to obtain more Lendable Collateral Value by increasing the market value of CRE portfolios. By reporting one to three additional fields of data on the CRE Qualifying Collateral Report, shareholders may see a significant increase in Lendable Collateral Value. Simply including loan-to-value data will, in most cases, increase market value. Including loan-to-value, remaining maturity, and debt service coverage ratio may increase market value even further.
Residential Mortgages with Loan-to-Value up to 130 percent
The Bank expanded eligibility of residential 1-4 first mortgage loans with loan-to-value ratios of up to 130 percent. This expansion is limited to residential first mortgage loans with an original loan-to-value of 100 percent or less.
Commercial Real Estate and Multifamily Second Mortgages
The Bank accepts commercial real estate second mortgages and multifamily second mortgages as eligible collateral. In order for these loans to be eligible, the shareholder must own both the first and second mortgages and the two mortgages must be for exactly the same property and issued to the same borrower. Additionally, in order to comply with regulatory requirements, shareholders must execute a short addendum to their Advances Agreement, which places the FHLBank Atlanta lien on these loans, before they can be reported.
For additional information about collateral eligibility, please visit the Collateral Resources section of the Bank’s website or call your collateral relationship specialist at 1.800.536.9650.
The Federal Home Loan Bank of Atlanta is not a registered investment advisor. Nothing herein is an offer to sell or a solicitation of an offer to buy any securities or derivative products. You should consult your own legal, financial, and accounting advisors before entering into any transaction.