Commercial Real Estate and Multi-Family Eligibility Changes

last updated on Monday, August 9, 2021 in Business News

As a result of current conditions in the commercial markets, FHLB Des Moines (the Bank) is adjusting select loan eligibility criteria as follows:

Loan to Values (LTVs): The maximum property LTVs are reduced by 10 percentage points for all commercial real estate and multi-family collateral types (Unpaid Principal Balance or Credit Line/Property Value for eligible loans). Blanket APSA members can continue to pledge CRE and MF loans within the qualifying eligibility LTV limit, but will only receive collateral capacity according to the Bank’s maximum eligibility LTV1.

The chart below provides a summary of the eligibility LTVs for each collateral type:

Type Code Collateral Type Qualifying Eligibility LTV Limit Maximum Eligibility LTV Capacity
1109 Mulit-Family 1st Mortgage 85% 75%
1401 Mulit-Family 2nd Mortgage 80% 70%
1402/1403 Commercial Real Estate 1st Mortgage 85% 75%
1404 Commercial Real Estate 2nd Mortgage 80% 70%
1441 Multi-Family 1st Lien LOC 80% 70%
1442 Multi-Family 2nd Lien LOC 80% 70%
1443 Commercial Real Estate 1st Lien LOC 80% 70%
1444 Commercial Real Estate 2nd Lien LOC 80% 70%
1470 Retained Participation Multi-Family 1st Mortgage 85% 75%
1471/1473 Retained Participation Commercial Real Estate 1st Mortgage 85% 75%
1570 Purchased Participation Multi-Family 1st Mortgage 85% 75%
1571/1573 Purchased Participation Commercial Real Estate 1st Mortgage 85% 75%

Debt Service Coverage Ratio (DSCR): Currently, the Bank requires a recent DSCR ≥ 1.0x for all loans with an Unpaid Principal Balance at or above $5,000,000 if the loan did not cash flow at origination.  

The eligibility criteria change for this requirement is adjusted based on the type of Advances, Pledge and Security Agreement (APSA) executed by the member/housing associate and currency requirements of the cash flow analysis:

For loans/lines of credit pledged by members executing the following APSA types:

  • Non-Blanket APSA:  All Loans  
  • Blanket APSA:  Loans with UPB ≥ $5,000,000 (or credit lines ≥ $5,000,000)

File evidences:

  • DSCR based on the fully amortizing payment supported by actual property net operating income (NOI) not > 18 months from reporting date. Supported by rent roll(s) not more than 13 months from reporting date.
  • Proforma NOI based on executed leases and/or rent rolls that demonstrate a DSCR ≥ 1.0x acceptable for newly originated loans for up to 18 months following first operating calendar year-end. DSCR based on actual NOI required thereafter.
  • For lines of credit, interest first or interest only loans, the DSCR is based on property net operating income (described above) divided by a fully amortizing payment equivalent no greater than 30 years.
  • Rent Roll: A rent roll not more than 13 months stale from reporting date for leased properties.

Pre-Approval for Specific or Delivery APSA Members: New pledges of all commercial real estate and multi-family loans must be reviewed and approved in advance of providing lendable value.

These changes are effective with pledged collateral as of June 30, 2021. The Debt Service Coverage Ratio requirement is now found on the General Eligibility Checklist.  

1These eligibility changes were amended on August 9, 2021 to allow members to more easily pledge CRE and MF loans while not losing full collateral capacity for loans that have an eligibility LTV above the Bank’s maximum. CRE and MF loans with LTV greater than 75 percent, and CRE and MF second mortgage and lines of credit with LTV greater than 70 percent will be assessed a slight eligibility factor discount during the MCV Member Collateral Verification (MCV) review process. Our Underwriting Assessment Matrix has been updated to reflect this discount during the MCV review. Eligibility Checklists are updated.