The Federal Home Loan Bank of Chicago (FHLBank Chicago) announces collateral lendable value (CLV) and qualified collateral report (QCR) margin changes that may impact the value of your pledged collateral.

1. Eligibility Changes for Certain Security Types: Effective July 1, 2020 

We are pleased to announce several changes that will increase member collateral capacity beginning July 1, 2020.

What Is Changing?
Fully defeased municipal bonds will no longer be subject to minimum rating requirements though they will still need to demonstrate a real estate purpose. This change will allow fully defeased municipal bonds that were previously deemed ineligible due to withdrawn ratings or ratings below FHLBank Chicago’s minimum to receive CLV.

Additionally, the following government guaranteed securities are now eligible to be pledged as collateral to FHLBank Chicago: 

• Private Export Funding Corporation (PEFCO) Securities
• United States Agency for International Development (USAID) Securities (Must be 100% U.S. government guaranteed)
• Overseas Private Investment Corporation (OPIC) Securities (Must be 100% U.S. government guaranteed)
• Development Finance Corporation (DFC) Securities (Must be 100% U.S. government guaranteed)

When Is the Change Effective?
The change is effective July 1, 2020, but most member institutions will not have CLV impacts until the conclusion of their Collateral Verification Review.

How Do the Changes Affect Me?
If your institution currently holds any of these security types and wishes to pledge them, please contact your Sales Director for details.


2. QCR Margin Change for Farmland Loans: Effective August 1, 2020 

FHLBank Chicago regularly monitors the market value of loan collateral pledged on a QCR basis and applies a cushion to its margins. Applying this cushion ordinarily provides stable and reliable CLV. During periods of extreme market volatility, it is possible fluctuations might exceed the ordinary cushion, making it necessary to adjust margins downward.

The market experienced heavy volatility in mid-to-late March due to the COVID-19 pandemic. While some asset prices have meaningfully recovered, Farmland loans have stabilized at lower price levels reflecting the uncertain macro-economic environment and their more limited liquidity. These price declines fully eroded the cushion built into Farmland QCR margins necessitating a change.

What Is Changing?
The margin applied to Farmland loans pledged on a QCR basis will decrease from 65% of the unpaid principal balance (UPB) to 63% of the UPB. No other QCR margins are changing at this time. 

When Is the Change Effective? When Will Market Values Be Considered?
The new QCR margin for Farmland loans will take effect on August 1, 2020. FHLBank Chicago regularly monitors market values, with the next evaluation of market value adjustments scheduled for October 1, 2020.

How Do the Changes Affect Me?
If you are pledging Farmland loans on a QCR basis today, you will see a slight decline in your CLV on August 1, 2020. If you have questions about this change, please contact your Sales Director.


How Can My Institution Improve Its Collateral Lendable Value? 

FHLBank Chicago remains committed to protecting the cooperative while also supporting the needs of our members. If you would like to increase your collateral position, please talk to your Sales Director about which strategies may be right for you.