Mortgage loans held for portfolio includes conventional mortgage loans and government-guaranteed or -insured mortgage loans obtained through the Mortgage Partnership Finance (MPF) program (Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago) and the Mortgage Purchase Program (MPP). The MPF program, which represented 98 percent of the Bank’s mortgage loans held for portfolio at both March 31, 2020 and December 31, 2019, involves investment by the Bank in single-family mortgage loans held for portfolio that are either purchased from participating financial institutions (PFIs) or funded by the Bank through PFIs. MPF loans may also be acquired through participations in pools of eligible mortgage loans purchased from other FHLBanks. The Bank’s MPF PFIs generally originate, service, and credit enhance mortgage loans that are sold to the Bank. MPF PFIs participating in the servicing release program do not service the loans owned by the Bank. The servicing on these loans is sold concurrently by the MPF PFI to a designated mortgage service provider.

Under the MPP, the Bank acquired single-family mortgage loans that were purchased directly from MPP PFIs. Similar to the MPF program, MPP PFIs generally originated, serviced, and credit enhanced the mortgage loans sold to the Bank. The MPP program represented two percent of the Bank’s mortgage loans held for portfolio at both March 31, 2020 and December 31, 2019. The Bank does not currently purchase mortgage loans under this program. All loans in this portfolio were originated prior to 2006.



	March 31, 2020			December 31, 2019
Fixed rate, long-term single-family mortgage loans	$	8,335		$	8,192
Fixed rate, medium-term¹ single-family mortgage loans	1,079			1,016
Total unpaid principal balance	9,414			9,208
Premiums	128			125
Discounts	(4		)	(4		)
Basis adjustments from mortgage loan purchase commitments	9			6
Total mortgage loans held for portfolio²	9,547			9,335
Allowance for credit losses	(1		)	(1		)
Total mortgage loans held for portfolio, net	$	9,546		$	9,334

Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal and/or interest in accordance with the terms of the loan. Other delinquency statistics include non-accrual loans and loans in process of foreclosure.



	March 31, 2020
	Origination Year
	Prior to 2016		2016 to 2020		Total
Past due 30 - 59 days	$	35	$	16	$	51
Past due 60 - 89 days	12		2		14
Past due 90 - 179 days	6		3		9
Past due 180 days or more	8		1		9
Total past due mortgage loans	61		22		83
Total current mortgage loans	2,726		6,231		8,957
Total amortized cost of mortgage loans¹	$	2,787	$	6,253	$	9,040



	December 31, 2019
Past due 30 - 59 days	$	57
Past due 60 - 89 days	14
Past due 90 - 179 days	10
Past due 180 days or more	10
Total past due mortgage loans	91
Total current mortgage loans	8,783
Total recorded investment of mortgage loans¹	$	8,874



	March 31, 2020
Amortized Cost	Conventional			Government-Insured			Total
In process of foreclosure¹	$	5		$	1		$	6
Serious delinquency rate²	—		%	2		%	—		%
Past due 90 days or more and still accruing interest³	$	—		$	8		$	8
Non-accrual mortgage loans⁴	$	29		$	—		$	29



	December 31, 2019
Recorded Investment	Conventional			Government- Insured			Total
In process of foreclosure¹	$	5		$	1		$	6
Serious delinquency rate²	—		%	1		%	—		%
Past due 90 days or more and still accruing interest³	$	—		$	7		$	7
Non-accrual mortgage loans⁴	$	31		$	—		$	31

The Bank evaluates mortgage loans for credit losses on a quarterly basis. The Bank adopted new accounting guidance for the measurement of credit losses on financial instruments on January 1, 2020. See “Note 2 — Recently Adopted and Issued Accounting Guidance” for additional information. See “Note 10 — Allowance for Credit Losses” in the 2019 Form 10-K for information on the prior methodology for evaluating credit losses on mortgage loans.

Conventional mortgage loans are evaluated collectively when similar risk characteristics exists. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. The Bank determines its allowances for credit losses on conventional loans through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions.

For collectively evaluated loans, the Bank uses a projected cash flow model to estimate expected credit losses over the life of the loans. This model relies on a number of inputs, such as current and projected property values and interest rates as well as historical borrower behavior experience. For MPF loans, the Bank also incorporates associated credit enhancements when determining its estimate of expected credit losses. In limited instances, the Bank may incorporate a management adjustment in the allowance for credit losses for conventional mortgage loans due to changes in economic and business conditions or other factors that may not be fully captured in its model.

For individually evaluated loans, the Bank uses the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. The Bank estimates the fair value of this collateral using a property valuation model. The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The Bank records a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs are included in the allowance for credit losses.

At both March 31, 2020 and December 31, 2019, the Bank’s allowance for credit losses on conventional mortgage loans totaled $1 million. As a result of adopting Measurement of Credit Losses on Financial Instruments (ASU 2016-13), the Bank recorded a $1 million decrease in its allowance for credit losses through a cumulative effect adjustment to retained earnings on January 1, 2020. This decrease was attributable to recoveries on conventional mortgage loans that were previously written down and have had their collateral values subsequently improve, partially offset by the incorporation of lifetime credit losses on its mortgage loan portfolio.

During the three months ended March 31, 2020, the Bank’s cash flow model for collectively evaluated loans projected a slight decrease in expected credit losses due to an updated calibration of model assumptions, optimistic mortgage rate forecast, and slight increase in regional home price appreciation (HPA). However, rapidly changing economic and business conditions in March of 2020 in response to COVID-19 and the potential forthcoming impact on the Bank’s portfolio indicated that, a reduction in expected credit losses was not warranted or prudent. As such, the Bank incorporated a management adjustment in its allowance for credit losses that was informed by multiple benchmark modeling scenarios that captured the projected effects of the global pandemic, including fiscal and monetary policy actions, updated mortgage rate and housing price forecasts, and significant increases in unemployment. Expected recoveries of prior charge-offs remained stable during the three months ended March 31, 2020.

The Bank invests in government-insured fixed rate mortgage loans 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.

The Bank has never experienced a credit loss on its government-insured mortgage loans. As of March 31, 2020, the Bank assessed its servicers and determined there was no expectation that a servicer would fail to remit payments due until paid in full. As a result, the Bank did not establish an allowance for credit losses for its government-insured mortgage loans at March 31, 2020 and December 31, 2019. 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.