On loans in forbearance

June 04, 2020

The FHLB understands that many of our members may be entering into loan payment forbearance arrangements with your customers during the current lockdown. There is some concern that a portion of these loans in forbearance may ultimately be unable to make all required principal payments. In order to assess the potential risk of associated delinquencies and losses, we are asking you to help us identify the magnitude of such loans by completing a monthly survey for the next several months. We are also providing an avenue for such loans to be included in a member’s reporting of eligible collateral, subject to terms and conditions detailed below.

Forbearance survey

The COVID Loan Forbearance Survey asks for the number and dollar volume of loans under forbearance by loan type, as well as such loans that are contractually 30 or more days past due. We are requesting that all members complete this survey following each month-end, utilizing month-end data, beginning with your May 31 numbers. We expect to request updates through September of this year (to be reported in early October), and will communicate the need for extending this survey if necessary.

Members choosing not to submit survey data will likely result in the FHLB having to make some conservative assumptions about the existence of forbearance loans and related delinquencies and losses, which may impact your institution’s FHLB borrowing capacity.

Forbearance loans as eligible collateral

Residential loans 60 days or more delinquent and commercial loans 30 days or more delinquent are normally ineligible to support Advance borrowing capacity. Loans under forbearance arrangements that have not been formally modified and for which the borrower has missed payments are treated by the FHLB as contractually delinquent, even if payment is not being demanded. If this delinquency exceeds the above delinquency limits, they should be deducted from eligible collateral in your periodic collateral certifications and not included on loan listings.

The change in policy being announced here is to allow as eligible collateral, loans under payment forbearance that the FHLB can subject to a market valuation process. To do this, this market valuation process will require a member to submit detailed loan-level information (Loan Listings) that include all information needed to establish a market value, and this data must be provided for all loans of a given loan type, both those in forbearance and otherwise. Listing templates and guidance on completion will be provided by request, and may change through time as the valuation and tracking processes mature.

There are additional requirements to participate in this program. For full details on these changes, see our June 4 email, which can also be found in the Inbox within Members Only

The FHLB intends to offer a simplified program that allows identification of the total unpaid principal balance of loans under forbearance on collateral certification forms. However, the earliest this may be available is for collateral certifications dated as of July 31, 2020. Watch for future communications as this process nears rollout. If you have interest in receiving eligibility from such loans, have any questions on the survey or have interest in listing this collateral, please contact our Collateral Operations team at (800) 828-4191, or at CollateralOperations@fhlbcin.com. When calling in, please ask to speak to someone about loan forbearance reporting.