Eligibility of Pledged Loan Collateral FAQs
last updated on Tuesday, April 14, 2020 in Member Services
This information was last updated on January 29, 2021 to include additional details for accommodating loans adversely affected by a major disaster occurring in 2020.
Federal Home Loan Bank of Des Moines (FHLB Des Moines or the Bank) has published general guidelines for members providing relief to their borrowers in relation to the coronavirus (COVID-19) pandemic, and other major disasters. Please see COVID-19 Updates and Resources. This Frequently Asked Questions (FAQ) provides additional information regarding that guidance. Members are reminded that all forbearance and modification agreements must comply with all applicable laws, regulations and regulatory guidance to which the member may be subject.
The Bank is actively monitoring actions by all regulators, including the Federal Housing Finance Agency, Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve, the Office of the Comptroller of the Currency, the National Credit Union Administration and the Consumer Financial Protection Bureau. We are also monitoring efforts at Fannie Mae (FNMA) and Freddie Mac (FHLMC). In the event these agencies provide additional relief initiatives or other guidance, we will assess our own guidance and make any adjustments as necessary.
General Guidelines on Acceptable Collateral Modifications
- What type of borrower relief does FHLB Des Moines permit for pledged loans to be eligible?
The Bank will accept loans with forbearance or modification agreements that otherwise meet our published eligibility criteria, provided the forbearance or modification is being made due to the COVID-19 pandemic or another major disaster declared in 2020.
Accommodations for non-COVID disasters, are limited to mortgages on real property and business loans located in a major disaster area. For the purposes of this guidance, a “major disaster area” is any county designated by the federal government during the calendar year 2020 as adversely affected by a declared major disaster administered by the Federal Emergency Management Agency (FEMA), where individual assistance payments have been authorized by FEMA.
- What documentation is required for a loan subject to forbearance (forbearance agreement) to be eligible during the forbearance period?
The Bank expects members will have written evidence of the forbearance being provided to the borrower; this evidence can be in paper, email or fax form. No signature of the borrower is required to evidence the forbearance being offered, provided there are no changes in the terms of the original note. The forbearance agreement should fully disclose that the repayment for suspended or reduced payments will be determined by the end of the forbearance term.
- What documentation is required for loans to continue to be eligible following the forbearance period?
The Bank expects that members will have written evidence of the repayment option(s) being provided to the borrower, and that such agreements are documented in accordance with applicable laws and regulations. Repayment options include the following:
- Reinstatement: Forborne funds fully collected at the end of the forbearance period. No signature of the borrower is required, provided there are no changes in the terms of the original note.
- Repayment Plan: Forborne funds collected in installments to bring the loan current over a period not to exceed 12 months beyond the expiration of the forbearance period. No signature of the borrower is required, provided there are no changes in the terms of the original note.
- Payment Deferral: Forborne funds collected at the end of the loan term, with no other change in terms. Evidence of borrower acknowledgement and acceptance is required, and the agreement should be delivered to the Bank’s custodian where loan delivery is required. No signature of the borrower is required, provided there are no changes in the terms of the original note, however, payment deferral without borrower signature will result in lower valuation of impacted loan collateral.
- Loan Modification: A change in terms of the original note. Signatures,* electronic or or wet, are required for any agreements that provide for any of the following:
- Adding the deferred payments to remaining note payments over a period that exceeds 12 months
- Extending the maturity of the note
- Adding all or a portion of the deferred payments to the principal of the note
- Changing the interest rate
*Please see the Adjusted Eligibility Guidelines for Pledged Collateral information for guidance when a borrower cannot provide a signature to the modification agreement.
- Are there any limitations on the duration of payment relief?
Payment relief may be extended if necessary, and in a manner consistent with the above guidance.
However, upon expiration of a forbearance period that is not extended, an agreement will be required to address the repayment of the deferred payments.
Additionally, the Bank will not accept as collateral any loans impacted by non-COVID major disasters that remain in forbearance beyond December 31, 2021.
- While maintaining collateral eligibility, can we simply allow the borrower to skip a payment without documentation?
No. Documentation of the payment relief offering to the borrower is required to be eligible. Members should assure files are documented as directed by their primary regulators and applicable law.
- Are there specific changes in terms that are expected or otherwise would not meet continued eligibility requirements?
This guidance is only intended to apply to forbearance or loan modifications made by members to address issues caused by COVID-19 and other major disasters declared in 2020. Provided that the terms of such agreements are short-term in nature and consistent with applicable legislation and regulatory guidance issued in response to COVID-19, they should not negatively impact the eligibility of the related loan.
- Do forbearance, or modification agreements only apply to residential mortgage loans?
No. The guidelines here apply to all loans accepted as collateral including business purpose and agricultural purpose mortgage and non-mortgage loans. However, payment relief accommodations on agency insured or guaranteed loans are subject to the requirements of the agency.
New Loan Originations
- Are electronic signatures acceptable for new loan originations?
Temporarily. An electronic or fax signature is permitted for new originations. However, the Bank will require a wet signature replacement when safe to do so.
For newly originated loans made in accordance with the SBA Paycheck Protection Program (PPP) requirements and guidelines, the Bank will accept electronically signed, newly originated loans. PPP loans will remain eligible as collateral even if a wet-inked signed copy is not obtained.
Past Due Assessment
- In reporting eligible collateral based on past due status, is FHLB Des Moines changing its limitations on past due loans?
No. Currently, we expect members to report past due loans based on the member’s determination of past due status. Reporting past due status for impacted loans should be completed in accordance with the requirements of the member’s primary regulator and applicable law.
For members providing detailed loan listing data, the past due status as determined by the member should be reflected in the Delinquency Code field. A loan’s paid through date, however, should continue to reflect payments made under the contractual terms of the note, including any executed modification or forbearance agreements.
Loans that have not been modified or paid current following the forbearance period, and have no borrower signature, may be subject to additional discounting in the Member Collateral Verification (MCV) and collateral valuation processes.
Regulatory Relief Initiatives