Frequently Asked Questions
Does the FHLBank System have an online presentation?
FHLBank System Update and Funding Review
Is information available about FHLBank lending and collateral policies?
Lending and Collateral Q&A
How do the FHLBanks use derivatives?
FHLBanks Derivatives Q&A
FHLBanks Background
What role does the Office of Finance play in the FHLBank System?
What is the FHLBank System, and what is its purpose?
Why do the FHLBanks issue debt?
Brochures
Are FHLBank brochures and financial reports available?
Debt Issuance
What kinds of debt are issued?
How are these securities sold?
Is FHLBank debt guaranteed by the U.S. Government?
Does the Office of Finance have an issuance calendar?
What is the TAP Issue Program?
Does the Office of Finance sell bonds and discount notes directly to investors?
Financial/Tax Info
Is FHLBank interest exempt from income tax?
What is the credit rating of the FHLBank System?
What is the status of the new FHLBank capital plans?
Recently, FHLBank earnings have been down from previous years - should I be concerned?
Is it true that the FHLBanks borrow short and lend long?
Mortgage Loans/Programs
Can I get a low interest loan?
How do the two FHLBank mortgage asset programs work?
My Bond Data
How can someone check to see if a bond is being called?
How can investors obtain an Offering Notice for a specific bond?
Why does the bond detail on Bloomberg not match my Offering Notice?
Why was my bond called in part?
What role does the Office of Finance play in the FHLBank System?
The Office of Finance (OF) is the System's centralized debt issuance facility. Its role is to buy the raw material - money - to support all FHLBank activities. In addition to issuing and servicing all of the debt, the OF also prepares the combined financial statements, selects/evaluates underwriters, and develops/maintains the infrastructure needed to meet System goals.
What is the FHLBank System, and what is its purpose?
The FHLBank System is a government-sponsored enterprise (GSE) chartered by Congress in 1932. Its purpose is to support residential mortgage lending and community investment at the local level. This is accomplished by providing primary mortgage liquidity (direct loans) to member financial institutions. Currently, there are 8,100 members located throughout every region of the country. Each member (typically a bank or S&L) is a shareholder in one or more of 12 regional FHLBanks, which are privately capitalized, separate corporate entities managed within a conservative framework established by the Federal Housing Finance Agency. Collectively, the FHLBanks have been described as the largest provider of mortgage credit in the U.S. In essence, they are the bankers' banks.
Why do the FHLBanks issue debt?
The FHLBanks issue debt in order to raise funds for their members. These funds are used for home mortgages, multi-family and rental housing, agricultural loans, and for seed money to foster community development. Funds are raised in three ways: by issuing debt, by accepting deposits from member institutions, and by selling capital stock to members.
Are FHLBank brochures and financial reports available?
The Office of Finance web site (www.fhlb-of.com) contains detailed descriptions of all FHLBank programs. Brochure and financial report files are also available. The link to financial reports is on the main menu of the site. For the current System brochure, you can use this link http://www.fhlb-of.com/products/brochuresframe.html to view, print or save the file. Copies of all FHLBank combined financial reports are on the Office of Finance web site in the "Financial Information" section.
What kinds of debt are issued?
The FHLBanks issue discount notes in maturities ranging from one day to one year. Bond maturities of six months to 30 years are offered, with the majority of issues between one and five years. Issue size can range from several million to $7 billion or more, and individual bonds can be reopened to meet additional demand. Because the FHLBanks operate a conservative balance sheet, and are active users of swaps to reduce risk, there is considerable flexibility with the structures and terms of issues brought to market. Bullets and fixed-rate callables predominate, but the System can effectively issue floaters, step-ups/downs, zeros, and others. Minimum denominations range from $10,000 to $500,000 or more, depending on complexity and associated risk.
How are these securities sold?
FHLBank debt is sold to investors through a network of approximately 100 different underwriters. The majority of this debt is negotiated, with the remainder sold through scheduled auctions. A current list of authorized underwriters is maintained on the Office of Finance web site. However, FHLBank debt is widely available, and can be obtained through nearly any securities firm via the secondary market.
Is FHLBank debt guaranteed by the U.S. Government?
No - but FHLBank debt is rated triple-A by Moody's and Standard & Poor's.
Do the FHLBanks have a debt issuance calendar?
To successfully fulfill its commitment to the U.S. housing market, the FHLBank System must have flexibility to operate and manage its core business: serving the funding needs of member financial institutions. Because the market fluctuates in and out of our funding targets, it is not feasible to schedule market participation during a specific week of the month. Likewise, we do not believe that investor's needs necessarily coincide with predetermined calendars. However, some FHLBank programs (TAP Issues, American callable bonds, and selected discount notes) are auctioned using a schedule. American callables and TAP Issues are auctioned daily at 10:30am and 11:30am, respectively. Four discount note maturities (4-, 9-, 13-, and 26-week) are auctioned twice weekly, on Tuesdays and Thursdays at 12:10pm.
What is the TAP Issue Program?
Launched in July 1999, TAP Issues are simply generic bullet maturities that are created once a quarter (at market prices) and then reopened over 3-month periods, allowing the FHLBanks to consolidate small medium-term notes into large, liquid issues under a single CUSIP. TAP Issues have standard features, including semi-annual interest payments on 2/15 and 8/15 or 5/15 and 11/15. On-the-run TAP maturities include the 2-, 3-, 5-, and 7-year. Spreads, yields, and issue sizes are updated on Bloomberg (TAPS
TAP Issue benefits include incremental growth, which avoids market disruption, daily auctions that provide liquidity through continuous supply, and price transparency with betweeen 18-24 firms generally eligible to bid. All on-the-run TAP Issues are included in all major bond indices, and interest on TAP Issues (like all FHLB securities) is exempt from state and local income tax. Selected TAP maturities (1.5- through 5-year) are available on the TradeWeb online marketplace. This Program is named after its funding method; the FHLBanks "tap" the markets over three month periods to obtain funding.
Does the Office of Finance sell bonds and discount notes directly to investors?
The Federal Housing Finance Agency (FHFA) mandates that the FHLBank System not sell debt securities directly to investors, because this action would raise disintermediation issues with our members. As a cooperative, the FHLBank System is owned by these 8,100 banks and thrifts, and is chartered with providing them with funds for housing, not in competing for their customers. Rather, we use a network of around 100 securities dealers, a list of which can be viewed in the Underwriters section of this web site.
Is FHLBank interest exempt from income tax?
All interest on FHLBank bonds and discount notes is exempt from state and local income tax for U.S. investors. You can see the actual language by using this link http://www.fhlb-of.com/offering/offeringframe.html to our web site. Open the file for the Offering Circular (on the left menu)and a description of the interest exemption can be found on pages 16-18. Please keep in mind that some states do levy certain other taxes on this interest in lieu of actual income tax. We have found that the most reliable source of information pertaining to taxability is the Department of Revenue office in your state, as they will be current on any legislative exceptions.
What is the credit rating of the FHLBank System?
FHLBank debt securities earn the highest ratings awarded by Moody's and Standard & Poor's rating services: Aaa/AAA and P-1/A-1. The BIS risk-weighting for FHLBank securities is 20% in most countries. These ratings reflect the System's strong fundamentals and financial position, sound management, status as a Government-Sponsored Enterprise (GSE), and federally authorized role in housing finance. Current Federal Housing Finance Agency regulations mandate that all FHLBank debt issues maintain a triple-A rating. Another factor that provides key creditor support: all debt issues are joint and several obligations of all 12 FHLBanks.
It should be noted that the FHLBank's conservative asset-liability management, combined with secured lending, have contributed to a record unparalleled in banking; since 1932, the FHLBanks have never experienced a loss on any member loan.
What is the status of the new FHLBank capital plans?
The passage of the Gramm-Leach-Bliley Act set in motion a timetable for the FHLBanks to review and enhance their existing capital structure. This legislation codifies a requirement that the capital to asset ratio must always be at least 4.0% (currently 4.2%), added new stress testing requirements, and began a move towards a risk-based capital base. The Act also established additional safeguards to maintain the 4.0% measure. For example, members would be prohibited from capital withdrawals if it would cause an FHLBank to fail the 4.0% test. In addition, members (from within a FHLBank district) can be required to contribute additional capital so the FHLBank meets this test. Moody's Investors Service and Standard & Poor's are in agreement that these enhancements are a credit positive. New plans at eleven FHLBanks (Atlanta, Boston, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, Seattle, and Topeka) have already been implemented, and the last will be up and running by the Regulator's mandated deadline.
FHLBank earnings are fairly volatile - should I be concerned?
No - back in 2002, FHLBank earnings of $1.51 billion were down from the previous year, but earnings have rebounded sharply since that time. For 2008, earnings are on a pace to exceed $2.8 billion. Keep in mind that when considering the FHLBanks' principal line of business (wholesale lending to banks), it is not ususual that earnings would contract somewhat in a low interest rate environment, just as they would tend to increase as interest rates rise. Recently, increased demand for lending has offset some effects of low interest rates. It is also important to note that as a cooperative, the FHLBanks are not focused solely on growing earnings quarter to quarter; a balance must be maintained between our public policy mission (providing low-cost loans) and the obligation to provide an adequate return to our 8,100 owners. By passing along the benefits of our GSE status in this fashion, we can strengthen communities all across the country.
Is it true that the FHLBanks borrow short and lend long?
No - the FHLBanks primary function is to provide credit to members. These loans are fairly short in maturity (less than five years), so one effective way to fund these assets is through matching debt issuance. Over the years, this is how the FHLBanks became a well-known issuer on the short end of the curve. The FHLBanks issue some longer-term debt to fund mortgage assets held in portfolio, as would be expected. However, mortgage loans currently equal only 7% of total FHLBank assets. Most debt issuance will continue to be inside of five years, although the FHLBanks will periodically tap the long end of the curve.
Can I get a low interest loan?
The Federal Home Loan Bank System exists to promote home ownership, and supports residential lending and community investment by providing funds to member financial institutions through the sale of debt securities. While not authorized to lend directly to the public, all 12 regional FHLBanks sponsor affordable housing programs. You can use this link http://www.fhfb.gov/Default.aspx?Page=50 to go to a list of all FHLBank districts in the U.S. There you can link to the FHLBank which represents your area, and obtain information on special housing programs, as well as the names and email addresses of Bank contacts. Since the FHLBank System has approximately 8,100 members, you may already be doing business with a bank that has access to these programs.
How do the FHLBank mortgage asset programs work?
Currently, all 12 FHLBanks have some mortgage assets held in portfolio. Mortgage Partnership Finance (MPF®) was launched first, in 1997, with the Mortgage Purchase Program following in 2000. Both are breakthrough programs in that they split the risks associated with underwriting mortgages. Members originate mortgage loans and pool them at an FHLBank. The originating lender manages the credit risk and customer relationship, while the FHLBank manages the interest rate risk. Unbundling the lending risk allows members to focus on what they know best - credit, and allows the FHLBank System to focus on what it knows best - hedging interest rate risk. Because there are no guarantee fees to pay, lenders are able to price more competitively, bringing down the cost of homeownership. At the end of Q2 2008, FHLBank mortgage assets equaled $89 billion. The average loan size has traditionally been about $130,000, with a FICO® score around 740 and an LTV of 69%.
How can someone check to see if a bond is being called?
On the Office of Finance web site (www.fhlb-of.com), there are two ways that investors can check the status of callable bonds. In the Securities Servicing section, select "Call Schedule" from the left menu. This will create a rolling list of callable bonds, ordered first by call date, and then by Cusip. Using the column headings you can determine if a bond was called in full, called in part, or not called. The only exception is American-style callables - these are only shown if they will be called in full or in part. To look up an individual callable bond, enter the Cusip in the search box on the left menu of the same page.
How can investors obtain an Offering Notice for a specific bond?
Offering notices are posted on the OF web site, in pdf file format, on or before the settlement date. By using the search box in the "Details & Documentation" section, these files can be accessed and then viewed, printed, saved locally, and/or emailed. Some details (such as coupon, maturity date, etc.) are released on trade date - the table (called New Issues) containing this date can be viewed in the Securities Issuance section.
Why does the bond detail on Bloomberg not match my Offering Notice?
Offering Notices are posted to the Office of Finance web site on the day of settlement after they have been reviewed by the underwriter and the Office of Finance. These are the final terms of the bond. If other sources are not consistent with the Offering Notice, contact those sources and alert them to the discrepancy.
Why was my bond called in part?
Many FHLBank bonds can be called in part. If this occurs, the action occurs pro-rata for all bondholders. Subsequently, the original par of the bond remains outstanding, but has a factor applied to it. There are 12 FHLBanks, each representing different customers in different areas of the country, so the operations and strategies of one FHLBank can differ from another. Proceeds from a given bond sale can be shared by two or more FHLBanks, so there are instances where one FHLBank may elect to call its portion of an issue, while the other Bank(s) does not.
Please feel free to contact us directly if you have any questions regarding FHLBank products, programs or services at info@fhlb-of.com