An Update on Reporting LIBOR-linked Loan Collateral

On Sept. 27, 2019, FHLBank Topeka announced it needed to implement a transition plan to prepare for the expected phase-out of the London Interbank Offered Rate (LIBOR) by the end of 2021. We also encouraged FHLBank members to begin distinguishing LIBOR-linked loan collateral with maturities past Dec. 31, 2021, and consider preparing for the transition by:

Creating an inventory of their LIBOR exposure.
Monitoring and understanding the alternative reference rate choices such as the Secured Overnight Financing Rate.
Creating a plan to stop utilizing LIBOR and to transfer legacy LIBOR exposure to a replacement index, which may require customer outreach and communications, renegotiation or remediation of existing contracts, systems and process changes.
Incorporating fallback provisions and trigger language in contracts.

Resources regarding the LIBOR transition are available on our website.

Upcoming Changes to the QCD Form for 3Q 2020 Reporting
As communicated earlier this year, our regulator, the Federal Housing Finance Agency (FHFA) directed us to make changes to our Qualifying Collateral Determination (QCD) form to help identify LIBOR-linked loan collateral that matures after 2021 pledged by each member. We were successful in extending the original timeline, from the March 31, 2020, reporting period, to the Sept. 30, 2020, reporting period.

The QCD form now accommodates reporting the amount of LIBOR-linked loan collateral pledged by each member, specifically the amount of LIBOR-linked loan collateral pledged to FHLBank that matures after 2021. When completing the third quarter QCD form, please identify and report all your LIBOR-linked loan collateral that matures after 2021, both Unrestricted and Restricted assets, pledged to FHLBank by asset type. We will ask for the total unpaid principal balance and number of loans you have tied to LIBOR.

We will be distributing more specific instructions on QCD form changes in the coming weeks. At this time, FHLBank has not made any changes to its underwriting requirements or lending values for LIBOR-linked collateral pledged to FHLBank that matures after 2021. However, FHLBank will continue to evaluate the risks associated with this collateral.

It is our desire to meet FHFA’s regulatory expectations in the most efficient and responsible manner possible, with the least possible impact to our membership. In this spirit, FHLBank chose the option to expand the QCD form rather than requesting loan level detail on LIBOR-linked loan collateral pledged to FHLBank. We recognize that some members might need to undertake technological and operational changes in order to meet the new data requirements of our QCD form. We understand that our request for additional information regarding LIBOR-linked loan collateral pledged to FHLBank is not without its challenges. We remain committed to assisting you with any challenges that arise regarding the enhanced QCD form.

We value your membership and look forward to continuing to provide you access to an array of flexible funding options for mortgage lending, liquidity, asset/liability management and community investment needs.

If you have any questions about these changes, please contact Kylie Mergen, Vice President and Director of Financial Services, or Elaine Shumaker, Assistant Vice President and Manager of Financial Services, at 877.933.7803.