HLB Bulletin No. 004
September 29, 2009
The Federal Home Loan Bank of New York (“HLB”) has revised the collateral guidelines for multifamily and commercial real estate mortgage collateral and various securities collateral types.
- Temporary Market Value Adjustment for Multifamily & Commercial Real Estate Mortgage Collateral
Due to market distress in the commercial real estate markets, the HLB will apply a temporary Market Value Adjustment (“MVA”) of 5% to all listed first and second lien, multifamily and commercial real estate mortgage collateral. This adjustment will take effect during the first full week of October 2009.
During the month of November we will implement market based pricing for multifamily and commercial real estate collateral. Our practice to date has been to apply collateral discounts to the par value of these collateral types. However, the significant market driven price decrease that has occurred in this sector has prompted us to discontinue this practice. Market-based pricing has been a standard practice for residential mortgage collateral for many years. Upon completing the transition to the new pricing standard we expect to either reduce or remove the 5% temporary MVA applied in October, baring any further market driven loss in liquidity.
More information about the pricing vendor and methodology will follow prior to implementation. - Residential Mortgage Loan Collateral
At this time, there are no changes to MVAs for residential mortgage collateral. However, our residential on-site review process has been revised to incorporate testing for mortgage collateral compliance with the Interagency Guidance for Subprime and Nontraditional Mortgage Lending. The outcome of these reviews may result in a higher MVA where the review identifies pledged mortgages with such higher risk characteristics. More information about this expanded assessment of collateral value will be available in an upcoming release of the Member Product Guide.
- Increase in Market Value Adjustments for Securities Collateral
The HLB has increased Market Value Adjustments (“MVA”) to certain private label and commercial mortgage-backed security types. These changes reflect the continued illiquidity, price volatility and stressed credit conditions in the market. The HLB will use the rating agency collateral description to determine the appropriate security type. These adjustments will take effect during the second week of October 2009.Security Type
MVA Increase
Residential Private Label Mortgage Backed Securities:
“AAA” Publicly Registered CMOs & Passthroughs*
And Private Placement PassthroughsPrime
+5%
Atl-A
+3%
Sub-prime
+3%
Commercial Mortgage Backed Securities**
“AAA” Publicly Registered CMBS
+8%
“AAA” Publicly Registered CMBS IO/PO
+8%
* MVA dependent upon type of underlying collateral
**MVA dependent upon the CMBS structure
Securities Pledged for Regular and Repo Advances must have readily ascertainable pricing available from a public pricing vendor and must maintain an AAA rating from all applicable NRSROs.
For an updated schedule of eligible collateral assets, including the associated over-collateralization and discount requirements, e-mail fhlbny@fhlbny.com. Updated Collateral Position Reports for your institution are available daily through 1Link. If, as a result of these adjustments, a collateral shortfall occurs, we will work with your institution to remedy the shortfall within a reasonable time period.
For more information on these collateral changes please contact your Calling Officer or Marianne R. Totaro, Senior Vice President, Collateral Services Group at (201) 356-1060.