MPF® Credit Enhancement Reduction

Credit Enhancement (CE) requirements for MPF Participating Financial Institutions (PFIs) are being reduced to reflect the historical and expected performance of MPF loans.

PFIs must take action for the reduced CE target rating to be applied to new loans sold under all MPF Traditional Master Commitments (MC).

We at FHLB Des Moines look forward to working with you through this transition.

The steps are listed below, along with information to assist you. 

Step 1: Review the Frequently Asked Questions (FAQ) below to understand both the CE target rating change and associated changes to your Master Commitment. If helpful, refresh your knowledge of how risk is shared in the MPF Traditional products with our on-demand webinar.

Step 2: Select the appropriate master commitments below based on your current product usage. You may transition between MPF Original and MPF 125. Follow the tips for completing the required fields not already populated. To see a list of all current active master commitments, please login to eMPF and view the Active Master Commitment Summary report. Each page will list a separate master commitment.

Step 3: Obtain authorized signatures within your institution and return to MortgageProducts@fhlbdm.com. This master commitment transition must be completed by February 28, 2018. 

FAQ

Why​ ​is​ ​the​ ​credit​ ​enhancement​ ​target​ ​rating​ ​being​ ​changed?

With approval from our Regulator, Federal Home Loan Bank of Des Moines has been given the ability to move our credit enhancement target rating based on many years of historical loan loss experience (since 1997) to support that change in methodology. History has proven that loans sold under the MPF Program are of good credit quality and therefore require a lesser credit enhancement support than previously projected.

What​ ​is​ ​the​ ​benefit​ ​to​ ​me​ ​of​ ​a​ ​lower​ ​MPF​ ​Credit​ ​Enhancement​ ​Target​ ​Rating?

The quickest answer is less credit enhancement obligation (your share of the credit risk) exposure. Another reason is the impact on your risk-based capital ratio. Analysis of recent MPF loan production prior to this change reflects a 40% to 60% reduction of required credit enhancement depending on specific loan characteristics.

Explain​ ​the​ ​impact​ ​a​ ​lower​ ​MPF​ ​Credit​ ​Enhancement​ ​Target​ ​Rating​ ​could​ ​have​ ​on​ ​my​ ​institution’s risk-based​ ​capital​ ​ratio.

A Participating Financial Institution (PFI) may have risk based capital reporting requirements related to credit enhancement obligation they hold under the MPF Program. A reduced credit enhancement target rating will typically result in a lower credit enhancement obligation (assuming similar loan characteristics). For more information regarding calculating your institution’s risk-weighted assets and understanding reporting requirements, please reference the following information from Wilary Winn, as well as consulting the risk based capital reporting requirements from your primary regulator.

Are​ ​there​ ​other​ ​impacts​ ​associated​ ​with​ ​this​ ​change?

Credit Enhancement fees (CE fees) paid to PFIs on the MPF Original and MPF 125 products will be adjusted to reflect a reduction in required PFI credit enhancement obligation. The annualized CE fee will be 9 bps (guaranteed) for the MPF Original product and 7 bps (performance based) for the MPF 125 product. The adjustment to the credit enhancement target risk rating will have no change to the First Loss Account (FLA) for either product. The FLA will remain the same for MPF Original (4 bps accrued annual on UPB) and MPF 125 (100 bps of funded amount). All PFIs will be transitioned to the new credit enhancement target risk rating and new CE fee level by February 28, 2018.

What​ ​do​ ​I​ ​need​ ​to​ ​do?

Your institution may choose to remain in the same MPF product (MPF 125 or MPF Original), or perhaps change products between MPF 125 and MPF Original. To complete this transition, please select the appropriate master commitment, complete the necessary fields and return to: MortgageProducts@fhlbdm.com.

If you would like to speak to someone regarding your options or the specifics of these changes, please contact your FHLB Des Moines Mortgage Relationship Manager:

Mortgage Product Group
MortgageProducts@fhlbdm.com
800.544.3452, ext 1108

Midwest Region Contact
Chuck Vaughn
CVaughn@fhlbdm.com
515.419.6145

Western Region Contact
Ed Barker
EBarker@fhlbdm.com
708.497.8786

Which fields do I need to complete on the Master Commitment form?

Please see the following fields:

  • Master Commitment No.: Leave blank.
  • Selling PFI and PFI No.: Input institution name and PFI number.
  • Servicer and Servicer No.: If servicing retained, input institution name and PFI number. If servicing released, this field will be prepopulated.
  • Remittance Type: This field will be pre-populated.
  • Master Commitment Amount: Must be in $5M increments. The PFI is not obligated to the amount on the MC; rather, this number acts as a cap on what a PFI can sell under a particular MC number.
  • Estimated Completion Date: FHLBDM will complete this field so that it aligns with any other outstanding master commitments.
  • Maximum PFI Credit Enhancement Amount: 3.5% x MC Amount.