XML 13 R18.htm IDEA: XBRL DOCUMENT

Allowance for Credit Losses

12 Months Ended

Dec. 31, 2019

Allowance for Credit Losses [Text Block]

Allowance for Credit Losses

The Bank has established an allowance for credit losses methodology for each of its financing receivable portfolio segments: advances, standby letters of credit, and other extensions of credit to borrowers (collectively, credit products), government-insured mortgage loans held for portfolio, MPF and MPP conventional mortgage loans held for portfolio, and term securities purchased under agreements to resell.

CREDIT PRODUCTS

The Bank manages its credit exposure to credit products through an approach that includes establishing a credit limit for each borrower. This approach includes an ongoing review of each borrower’s financial condition in conjunction with the Bank’s collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, the Bank lends to eligible borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

The Bank is required by regulation to obtain sufficient collateral to fully secure its advances and other credit products. The estimated value of the collateral required to secure each borrower’s credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal or market value, if available, of the collateral. Eligible collateral includes (i) fully disbursed whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages, (ii) loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Fannie Mae, Freddie Mac, or Government National Mortgage Association, (iii) cash deposited with the Bank, and (iv) other real estate-related collateral acceptable to the Bank, such as second lien mortgages, home equity lines of credit, tax-exempt municipal securities, and commercial real estate mortgages, provided such collateral has a readily ascertainable value and the Bank can perfect a security interest in such property. Community financial institutions may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that the Bank has a lien on each member’s capital stock investment; however, capital stock cannot be pledged as collateral to secure credit exposures.

Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and overall credit exposure to the borrower. The Bank can also require additional or substitute collateral to protect its security interest. The Bank periodically evaluates and makes changes to its collateral guidelines and collateral haircuts.

Borrowers may pledge collateral to the Bank by executing a blanket pledge agreement, specifically assigning collateral, or placing physical possession of collateral with the Bank or its custodians. The Bank perfects its security interest in all pledged collateral by filing Uniform Commercial Code financing statements or by taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to the Bank by its members, or any affiliates of its members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

Under a blanket pledge agreement, the Bank is granted a security interest in all financial assets of the borrower to fully secure the borrower’s obligation. Other than securities and cash deposits, the Bank does not initially take delivery of collateral from blanket agreement borrowers. In the event of deterioration in the financial condition of a blanket pledge agreement borrower, the Bank has the ability to require delivery of pledged collateral sufficient to secure the borrower’s obligation. With respect to non-blanket pledge agreement borrowers that are federally insured, the Bank generally requires collateral to be specifically assigned. With respect to non-blanket pledge agreement borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), the Bank generally takes control of collateral through the delivery of cash, securities, or loans to the Bank or its custodians.

Using a risk-based approach and taking into consideration each borrower’s financial strength, the Bank considers the types and level of collateral to be the primary indicator of credit quality on its credit products. At December 31, 2019 and 2018, the Bank had rights to collateral on a borrower-by-borrower basis with an unpaid principal balance or market value, if available, in excess of its outstanding extensions of credit.

At December 31, 2019 and 2018, none of the Bank’s credit products were past due, on non-accrual status, or considered impaired. In addition, there were no TDRs related to credit products during the years ended December 31, 2019 and 2018.

The Bank has never experienced a credit loss on its credit products. Based upon the Bank’s collateral and lending policies, the collateral held as security, and the repayment history on credit products, management has determined that there were no probable credit losses on its credit products as of December 31, 2019 and 2018. Accordingly, the Bank has not recorded any allowance for credit losses for its credit products.

GOVERNMENT-INSURED MORTGAGE LOANS

The Bank invests in government-insured fixed rate mortgage loans in both the MPF and MPP portfolios that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. As such, the Bank only has credit risk for these loans if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance. Management views this risk as remote and has never experienced a credit loss on its government-insured mortgage loans. As a result, the Bank did not establish an allowance for credit losses for its government-insured mortgage loans at December 31, 2019 and 2018. Furthermore, none of these mortgage loans have been placed on non-accrual status because of the U.S. Government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

CONVENTIONAL MORTGAGE LOANS

The Bank’s management of credit risk in the MPF and MPP programs involves several layers of legal loss protection that are defined in agreements among the Bank and its participating PFIs. These loss layers may vary depending on the product alternatives selected and credit profile of the loans. The Bank’s loss protection consists of the following loss layers, in order of priority:


•	Homeowner Equity.


•	PMI. At the time of origination, PMI is required on all loans with homeowner equity of less than 20 percent of the original purchase price or appraised value, whichever is less and as applicable to the specific loan.


•	First Loss Account (FLA). For each MPF master commitment, the Bank’s potential loss exposure prior to the PFI’s credit enhancement obligation is estimated and tracked in a memorandum account called the FLA.


•	Credit Enhancement Obligation of PFI. PFIs have a credit enhancement obligation at the time an MPF mortgage loan is purchased to absorb certain losses in excess of the FLA in order to limit the Bank’s loss exposure to that of an investor in an investment grade MBS. PFIs pledge collateral to secure this obligation.

Allowance Methodology

The Bank utilizes an allowance for credit losses to reserve for estimated losses in its conventional MPF and MPP mortgage loan portfolios at the balance sheet date. The measurement of the Bank’s MPF and MPP allowance for credit losses is determined by the following:


•	reviewing similar conventional mortgage loans for impairment on a collective basis. This evaluation is primarily based on the following factors: (i) current loan delinquencies, (ii) loans migrating to collateral-dependent status, and (iii) actual historical loss severities;


•	reviewing conventional mortgage loans for impairment on an individual basis; and


•	estimating additional credit losses in the conventional mortgage loan portfolio. These losses result from other factors that may not be captured in the methodology previously described at the balance sheet date, which include but are not limited to certain quantifiable economic factors, such as unemployment rates and home prices impacting housing markets.

The following table summarizes the allowance for credit losses and recorded investment of the Bank’s conventional mortgage loan portfolio by impairment methodology (dollars in millions):



	December 31,
	2019		2018
Allowance for credit losses
Collectively evaluated for impairment	$	1	$	1

Recorded investment¹
Collectively evaluated for impairment	$	8,825	$	7,306
Individually evaluated for impairment, without a related allowance	49		54
Total recorded investment	$	8,874	$	7,360


1	Represents the unpaid principal balance adjusted for accrued interest, unamortized premiums, discounts, basis adjustments, and direct write-downs.

CREDIT QUALITY INDICATOR AND OTHER DELINQUENCY STATISTICS

The key credit quality indicator for mortgage loans is payment status. The tables below present the payment status of mortgage loans based on recorded investment as well as other delinquency statistics (dollars in millions):



	December 31, 2019
Payment status	Conventional MPF/MPP			Government-Guaranteed or -Insured⁶			Total
Past due 30 - 59 days	$	57		$	20		$	77
Past due 60 - 89 days	14			5			19
Past due 90 - 179 days	10			4			14
Past due 180 days or more	10			3			13
Total past due mortgage loans	91			32			123
Total current mortgage loans	8,783			477			9,260
Total recorded investment of mortgage loans¹	$	8,874		$	509		$	9,383

In process of foreclosure (included above)²	$	5		$	1		$	6
Serious delinquency rate³	—		%	1		%	—		%
Past due 90 days or more and still accruing interest⁴	$	—		$	7		$	7
Non-accrual mortgage loans⁵	$	31		$	—		$	31



	December 31, 2018
Payment status	Conventional MPF/MPP			Government-Guaranteed or -Insured⁶			Total
Past due 30 - 59 days	$	49		$	17		$	66
Past due 60 - 89 days	14			5			19
Past due 90 - 179 days	11			4			15
Past due 180 days or more	13			4			17
Total past due mortgage loans	87			30			117
Total current mortgage loans	7,273			486			7,759
Total recorded investment of mortgage loans¹	$	7,360		$	516		$	7,876

In process of foreclosure (included above)²	$	8		$	2		$	10
Serious delinquency rate³	—		%	2		%	—		%
Past due 90 days or more and still accruing interest⁴	$	—		$	8		$	8
Non-accrual mortgage loans⁵	$	36		$	—		$	36


1	Represents the unpaid principal balance adjusted for accrued interest, unamortized premiums, discounts, basis adjustments, and direct write-downs.


2	Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans depending on their payment status.


3	Represents mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total recorded investment.


4	Represents government-insured mortgage loans that are 90 days or more past due.


5	Represents conventional mortgage loans that are 90 days or more past due or TDRs.


6	The Bank did not record any allowance for credit losses on government-guaranteed or -insured mortgage loans at December 31, 2019 and 2018.

INDIVIDUALLY EVALUATED IMPAIRED LOANS

As previously described, the Bank evaluates certain conventional mortgage loans for impairment individually. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

The Bank did not recognize any interest income on impaired loans during the years ended December 31, 2019, 2018, and 2017.

During the years ended December 31, 2019 and 2018, the average recorded investment of conventional impaired loans without an allowance was $52 million and $58 million.

TERM SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

Term securities purchased under agreements to resell are considered collateralized financing agreements and represent short-term investments. The terms of these investments are structured such that if the market value of the underlying securities decreases below the market value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. Otherwise, the dollar value of the resale agreement will decrease accordingly. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement will be charged to earnings to establish an allowance for credit losses. Based upon the collateral held as security, the Bank determined that no allowance for credit losses was needed for its term securities purchased under agreements to resell at December 31, 2019 and 2018.

OFF-BALANCE SHEET CREDIT EXPOSURES

At December 31, 2019 and 2018, the Bank did not record a liability to reflect an allowance for credit losses for off-balance sheet credit exposures. For additional information on the Bank’s off-balance sheet credit exposures, see “Note 18 — Commitments and Contingencies.”