HELOC Collateral Eligibility Update Effective Oct. 1

posted on Friday, July 24, 2020 in Business News

Over the past several months, Federal Home Loan Bank of Des Moines (the Bank) has been reviewing the eligibility of Convertible Home Equity Lines of Credit (HELOC) loans (also known as Hybrid HELOCs) as collateral. Convertible or Hybrid HELOCs provide borrowers an option to convert one or more floating rate advances to closed-end, amortizing fixed rate advances

The goal of the review was to ensure loans pledged to the Bank have a readily ascertainable market value and can be liquidated quickly. As a result of our research, the Bank has determined the following clarification guidance related to Hybrid HELOCs:

Effective October 1, 2020 (beginning with the September 30, 2020 reporting period), Hybrid HELOCs remain eligible, provided only the balance of floating advances is pledged in Collateral Type Code 1423 (first lien) or 1424 (second lien). Members should not include balances related to fixed advances in any reported unpaid balances.  

Members may pledge a fixed advance (or advances) memorialized with its own promissory note and stand-alone loan documentation file as 1-4 Family Home Equity Mortgage (Collateral Type Code 1414). Hybrid HELOCs where fixed-advance balances are included in the unpaid principal balance in any collateral category are ineligible.

Traditional HELOC collateral remains eligible, including those that convert to closed-end at the conclusion of a draw period specified in the original HELOC agreement.

view HELOC eligibility checklist

Future Eligibility of Hybrid HELOCs
We remain committed to finding solutions to provide full eligibility for this collateral. We would welcome the opportunity to work with our members as we continue to evaluate the legal, regulatory and operational aspects in order to expand our collateral eligibility menu.

Questions? Contact your relationship manager.