PART 1266—ADVANCES Authority: 12 U.S.C. 1426, 1429, 1430, 1430b, 1431, 4511(b), 4513, 4526(a). Source: 58 FR 29469, May 20, 1993, unless otherwise noted. Redesignated at 65 FR 8256, Feb. 18, 2000, and 75 FR 76622, Dec. 9, 2010. Editorial Note: Nomenclature changes to part 1266 appear at 75 FR 76622, Dec. 9, 2010. Subpart A—Advances to Members § 1266.1 Definitions. As used in this part: Advance (1) Provided pursuant to a written agreement; (2) Supported by a note or other written evidence of the borrower's obligation; and (3) Fully secured by collateral in accordance with the Bank Act and this part. Affiliate Capital deficient member Cash equivalents (1) Are readily convertible into known amounts of cash; (2) Have a remaining maturity of 90 days or less at the acquisition date; and (3) Are held for liquidity purposes. CFI member (1) Based on the average of total assets drawn from the institution's regulatory financial reports (as defined in § 1263.1 of this chapter) filed with its appropriate regulator (as defined in § 1263.1 of this chapter) for the three most recent calendar year-ends; and (2) Annually, and shall be effective April 1 of each year. Community development Community development loan (1) Any loan or instrument that qualifies as eligible security for an advance under § 1266.7(a) of this part; (2) Any loan that qualifies as a small agri-business loan, small business loan or small farm loan, under definitions set forth in this section; or (3) Consumer loans or credit extended to one or more individuals for household, family or other personal expenditures. Credit union Depository institution Dwelling unit Improved residential real property Insurer Long-term advance Manufactured housing Mortgage-backed security (1) An equity security representing an ownership interest in: (i) Fully disbursed, whole first mortgage loans on improved residential real property; or (ii) Mortgage pass-through or participation securities which are themselves backed entirely by fully disbursed, whole first mortgage loans on improved residential real property; or (2) An obligation, bond, or other debt security backed entirely by the assets described in paragraph (1)(i) or (ii) of this definition. Multifamily property (1)(i) Real property that is solely residential and which includes five or more dwelling units; or (ii) Real property which includes five or more dwelling units with commercial units combined, provided the property is primarily residential. (2) Multifamily property as defined in this section includes nursing homes, dormitories and homes for the elderly. Nonresidential real property One-to-four family property (1) Real property containing: (i) One-to-four dwelling units; or (ii) More than four dwelling units if each unit is separated from the other units by dividing walls that extend from ground to roof, including row houses, townhouses or similar types of property; (2) Manufactured housing if: (i) Applicable state law defines the purchase or holding of manufactured housing as the purchase or holding of real property; and (ii) The loan to purchase the manufactured housing is secured by that manufactured housing; (3) Individual condominium dwelling units or interests in individual cooperative housing dwelling units that are part of a condominium or cooperative building without regard to the number of total dwelling units therein; or (4) Real property containing one-to-four dwelling units with commercial units combined, provided the property is primarily residential. Residential housing finance assets (1) Loans secured by residential real property; (2) Mortgage-backed securities; (3) Participations in loans secured by residential real property; (4) Loans or investments providing financing for economic development projects for targeted beneficiaries; (5) Loans secured by manufactured housing, regardless of whether such housing qualifies as residential real property; (6) Any loans or investments which FHFA, in its discretion, otherwise determines to be residential housing finance assets; and (7) For CFI members, and to the extent not already included in categories (1) through (6), small business loans, small farm loans, small agri-business loans, or community development loans. Residential real property (1) Any of the following: (i) One-to-four family property; (ii) Multifamily property; (iii) Real property to be improved by the construction of dwelling units; (iv) Real property in the process of being improved by the construction of dwelling units; (2) The term residential real property does not include nonresidential real property as defined in this section. Savings association Small agri-business loans Small business loans Small farm loans State housing finance agency SHFA State regulator Tangible capital (1) Capital, calculated according to GAAP, less “intangible assets” except for purchased mortgage servicing rights to the extent such assets are included in a member's core or Tier 1 capital, as reported in a member's Report of Condition and Income for members whose primary federal regulator is the FDIC, the OCC, or the FRB. (2) Capital calculated according to GAAP, less intangible assets, as defined by a Bank for members that are not regulated by the FDIC, the OCC, or the FRB; provided that a Bank shall include a member's purchased mortgage servicing rights to the extent such assets are included for the purpose of meeting regulatory capital requirements. In addition, for those members that are insurance companies and that do not file or otherwise prepare financial statements based on GAAP, Banks may base this calculation on the member's financial statements prepared using Statutory Accounting Principles as implemented by the insurance company member's appropriate state regulator. Targeted beneficiaries [58 FR 29469, May 20, 1993, as amended at 58 FR 29477, May 20, 1993; 59 FR 2949, Jan. 20, 1994; 62 FR 8871, Feb. 27, 1997; 62 FR 12079, Mar. 14, 1997; 63 FR 35128, June 29, 1998; 63 FR 65545, Nov. 27, 1998; 64 FR 16621, Apr. 6, 1999; 65 FR 8262, Feb. 18, 2000; 65 FR 44428, July 18, 2000; 66 FR 50295, Oct. 3, 2001; 67 FR 12850, Mar. 20, 2002; 75 FR 76622, Dec. 9, 2010; 78 FR 2324, Jan. 11, 2013; 81 FR 76297, Nov. 2, 2016] § 1266.2 Authorization and application for advances; obligation to repay advances. (a) Application for advances. (b) Obligation to repay advances. (2) Such obligations shall be evidenced by a written advances agreement that shall be reviewed by the Bank's legal counsel to ensure such agreement is in compliance with applicable law. (c) Secured advances. (2) The Bank shall execute a written security agreement with each borrowing member which establishes the Bank's security interest in collateral securing advances. (3) Such written security agreement shall, at a minimum, describe the type of collateral securing the advances and give the Bank a perfectible security interest in the collateral. (d) Form of applications and agreements. (e) Status of secured lending. [58 FR 29469, May 20, 1993, as amended at 64 FR 71278, Dec. 21, 1999; 65 FR 8262, Feb. 18, 2000. Redesignated at 65 FR 44429, July 18, 2000; 67 FR 12851, Mar. 20, 2002; 75 FR 76623, Dec. 9, 2010] § 1266.3 Purpose of long-term advances; Proxy test. (a) A Bank shall make long-term advances only for the purpose of enabling any member to purchase or fund new or existing residential housing finance assets. (b)(1) Prior to approving an application for a long-term advance, a Bank shall determine that the principal amount of all long-term advances currently held by the member does not exceed the total book value of residential housing finance assets held by such member. The Bank shall determine the total book value of such residential housing finance assets, using the most recent Thrift Financial Report, Report of Condition and Income, financial statement or other reliable documentation made available by the member. (2) Applications for CICA advances are exempt from the requirements of paragraph (b)(1) of this section. [75 FR 76623, Dec. 9, 2010] § 1266.4 Limitations on access to advances. (a) Credit underwriting. (1) Limit or deny a member's application for an advance if, in the Bank's judgment, such member: (i) Is engaging or has engaged in any unsafe or unsound banking practices; (ii) Has inadequate capital; (iii) Is sustaining operating losses; (iv) Has financial or managerial deficiencies, as determined by the Bank, that bear upon the member's creditworthiness; or (v) Has any other deficiencies, as determined by the Bank; or (2) Make advances and renewals only if the Bank determines that it may safely make such advance or renewal to the member, including advances and renewals made pursuant to this section. (b) New advances to members without positive tangible capital. (2) A Bank shall use the most recently available Thrift Financial Report, Report of Condition, and Income or other regulatory report of financial condition to determine whether a member has positive tangible capital. (c) Renewals of advances to members without positive tangible capital Renewal for 30-day terms. (2) Renewal for longer than 30-day terms. (d) Advances to capital deficient but solvent members. (2)(i) A Bank shall not lend to a capital deficient member that has positive tangible capital if it receives written notice from the appropriate federal banking agency or insurer that the member's use of Bank advances has been prohibited. The Bank shall promptly provide the FHFA with a copy of any such notice. (ii) A Bank may resume lending to such a capital deficient member if the Bank receives a written statement from the appropriate federal banking agency or insurer which re-establishes the member's ability to use advances. (e) Reporting. (2) Each Bank shall, upon written request from a member's appropriate federal banking agency or insurer, provide to such entity information on advances and commitments outstanding to the member. (f) Members without federal regulators. (g) Advance commitments. (2) Each Bank shall include the stipulation contained in paragraph (g)(1) of this section as a clause in either: (i) The written advances agreement required by § 1266.2(b)(2) of this part; or (ii) The written advances application required by § 1266.2(a) of this part. [58 FR 29469, May 20, 1993, as amended at 59 FR 2949, Jan. 20, 1994; 64 FR 71278, Dec. 21, 1999; 65 FR 8263, Feb. 18, 2000. Redesignated at 65 FR 44429, July 18, 2000, as amended at 67 FR 12851, Mar. 20, 2002; 71 FR 35500, June 21, 2006] § 1266.5 Terms and conditions for advances. (a) Advance maturities. (b) Advance pricing General. (i) The marginal cost to the Bank of raising matching term and maturity funds in the marketplace, including embedded options; and (ii) The administrative and operating costs associated with making such advances to members. (2) Differential pricing. (A) The credit and other risks to the Bank of lending to any particular member; or (B) Other reasonable criteria that may be applied equally to all members. (ii) Each Bank shall include in its member products policy required by § 917.4 of this title, standards and criteria for such differential pricing and shall apply such standards and criteria consistently and without discrimination to all members applying for advances. (3) Exceptions. (i) A Bank's CICA programs; and (ii) Any other advances programs that are volume limited and specifically approved by the Bank's board of directors. (c) Authorization for pricing advances. (2) A Bank president authorized to set interest rates on advances pursuant to this paragraph (c) may delegate any part of such authority to any officer or employee of the Bank. (d) Putable or convertible advances Disclosure. (2) Replacement funding for putable advances. (3) Definition. putable advance [58 FR 29469, May 20, 1993, as amended at 61 FR 52687, Oct. 8, 1996; 65 FR 8263, Feb. 18, 2000. Redesignated and amended at 65 FR 44429, July 18, 2000] § 1266.6 Fees. (a) Fees in member products policy. (b) Prepayment fees. (2) Prepayment fees are not required for: (i) Advances with original terms to maturity or repricing periods of six months or less; (ii) Advances funded by callable debt; or (iii) Advances which are otherwise appropriately hedged so that the Bank is financially indifferent to their prepayment. (3) The board of directors of each Bank, a designated committee thereof, or officers specifically authorized by the board of directors, may waive a prepayment fee only if such prepayment will not result in an economic loss to the Bank. Any such waiver must subsequently be ratified by the board of directors. (4) A Bank, in determining whether or not to waive a prepayment fee, shall apply consistent standards to all of its members. (c) Commitment fees. (d) Other fees. [58 FR 29469, May 20, 1993; 65 FR 8263, Feb. 18, 2000. Redesignated and amended at 65 FR 44429, July 18, 2000] § 1266.7 Collateral. (a) Eligible security for advances to all members. (1) Mortgage loans and privately issued securities. (ii) Privately issued mortgage-backed securities, excluding the following: (A) Securities that represent a share of only the interest payments or only the principal payments from the underlying mortgage loans; (B) Securities that represent a subordinate interest in the cash flows from the underlying mortgage loans; (C) Securities that represent an interest in any residual payments from the underlying pool of mortgage loans; or (D) Such other high-risk securities as the FHFA in its discretion may determine. (2) Agency securities. (i) Mortgage-backed securities issued or guaranteed by Freddie Mac, Fannie Mae, Ginnie Mae, or any other agency of the United States Government; (ii) Mortgages or other loans, regardless of delinquency status, to the extent that the mortgage or loan is insured or guaranteed by the United States or any agency thereof, or otherwise is backed by the full faith and credit of the United States, and such insurance, guarantee or other backing is for the direct benefit of the holder of the mortgage or loan; and (iii) Securities backed by, or representing an equity interest in, mortgages or other loans referred to in paragraph (a)(2)(ii) of this section. (3) Cash or deposits. (4) Other real estate-related collateral. (A) Such collateral has a readily ascertainable value, can be reliably discounted to account for liquidation and other risks, and can be liquidated in due course; and (B) The Bank can perfect a security interest in such collateral. (ii) Eligible other real estate-related collateral may include, but is not limited to: (A) Privately issued mortgage-backed securities not otherwise eligible under paragraph (a)(1)(ii) of this section; (B) Second mortgage loans, including home equity loans; (C) Commercial real estate loans; and (D) Mortgage loan participations. (5) Securities representing equity interests in eligible advances collateral. (i) Eligible collateral under paragraphs (a)(1), (2), (3) or (4) of this section; or (ii) Cash equivalents. (b) Additional collateral eligible as security for advances to CFI members or their affiliates General. (i) Such collateral has a readily ascertainable value, can be reliably discounted to account for liquidation and other risks, and can be liquidated in due course; and (ii) The Bank can perfect a security interest in such collateral. (2) Change in CFI status. (i) Permit the advances of such member to run to their stated maturities; and (ii) Renew such member's advances to mature no later than March 31 of the following year; provided that the total of the member's advances under paragraphs (b)(2)(i) and (ii) of this section shall be fully secured by collateral set forth in paragraphs (a) and (b) of this section. (c) Bank restrictions on eligible advances collateral. (d) Additional advances collateral. (e) Bank stock as collateral. (2) The written security agreement used by the Bank shall provide that the borrowing member's Bank stock is assigned as additional security by the member to the Bank. (3) The security interest of the Bank in such member's Bank stock shall be entitled to the priority provided for in section 10(e) of the Bank Act (12 U.S.C. 1430(e)). (f) Advances collateral security requiring formal approval. (g) Pledge of advances collateral by affiliates. (1) The collateral is pledged to secure either: (i) The member's obligation to repay advances; or (ii) A surety or other agreement under which the affiliate has assumed, along with the member, a primary obligation to repay advances made to the member; and (2) The Bank obtains and maintains a legally enforceable security interest pursuant to which the Bank's legal rights and privileges with respect to the collateral are functionally equivalent in all material respects to those that the Bank would possess if the member were to pledge the same collateral directly, and such functional equivalence is supported by adequate documentation. [58 FR 29469, May 20, 1993, as amended at 64 FR 16621, Apr. 6, 1999; 65 FR 8262, Feb. 18, 2000. Redesignated and amended at 65 FR 44429, July 18, 2000; 67 FR 12851, Mar. 20, 2002; 75 FR 76623, Dec. 9, 2010] § 1266.8 Banks as secured creditors. (a) Except as provided in paragraph (b) of this section, notwithstanding any other provision of law, any security interest granted to a Bank by a member, or by an affiliate of a member, shall be entitled to priority over the claims and rights of any party, including any receiver, conservator, trustee or similar party having rights of a lien creditor, to such collateral. (b) A Bank's security interest as described in paragraph (a) of this section shall not be entitled to priority over the claims and rights of a party that: (1) Would be entitled to priority under otherwise applicable law; and (2) Is an actual bona fide purchaser for value of such collateral or is an actual secured party whose security interest in such collateral is perfected in accordance with applicable state law. [58 FR 29469, May 20, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000 and further redesignated at 65 FR 44429, July 18, 2000, as amended at 67 FR 12851, Mar. 20, 2002] § 1266.9 Pledged collateral; verification. (a) Collateral safekeeping. (2) A Bank shall take any steps necessary to ensure that its security interest in all collateral pledged by non-depository institutions for an advance is as secure as its security interest in collateral pledged by depository institutions. (3) A Bank may at any time perfect its security interest in collateral securing an advance to a member. (b) Collateral verification. [58 FR 29469, May 20, 1993, as amended at 64 FR 16621, Apr. 6, 1999; 65 FR 8263, Feb. 18, 2000. Redesignated at 65 FR 44430, July 18, 2000; 67 FR 12851, Mar. 20, 2002] § 1266.10 Collateral valuation; appraisals. (a) Collateral valuation. (b) Fair application of procedures. (c) Appraisals. [65 FR 44430, July 18, 2000, as amended at 81 FR 76297, Nov. 2, 2016] § 1266.11 [Reserved] § 1266.12 Intradistrict transfer of advances. (a) Advances held by members. (b) Advances held by nonmembers. [59 FR 2950, Jan. 20, 1994. Redesignated at 65 FR 44430, July 18, 2000] § 1266.13 Special advances to savings associations. (a) Eligible institutions. (2) Such request must certify that the savings association member: (i) Is solvent but presents a supervisory concern to the OCC or FDIC, as appropriate, because of the member's financial condition; and (ii) Has reasonable and demonstrable prospects of returning to a satisfactory financial condition. (b) Terms and conditions. (1) Be subject to all applicable collateral requirements of the Bank, this part and section 10(a) of the Bank Act (12 U.S.C. 1430(a)); and (2) Be at the interest rate applicable to advances of similar type and maturity that are made available to other members that do not pose such a supervisory concern. [58 FR 29469, May 20, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000 and further redesignated at 65 FR 44430, July 18, 2000; 81 FR 76298, Nov. 2, 2016] § 1266.14 Advances to the Savings Association Insurance Fund. (a) Authority. (b) Requirements. (1) Bear a rate of interest not less than the Bank's marginal cost of funds, taking into account the maturities involved and reasonable administrative costs; (2) Have a maturity acceptable to the Bank; (3) Be subject to any prepayment, commitment, or other appropriate fees of the Bank; and (4) Be adequately secured by collateral acceptable to the Bank. [58 FR 29469, May 20, 1993, as amended at 65 FR 8262, Feb. 18, 2000. Redesignated at 65 FR 44430, July 18, 2000] § 1266.15 Liquidation of advances upon termination of membership. If an institution's membership in a Bank is terminated, the Bank shall determine an orderly schedule for liquidating any indebtedness of such member to the Bank; this section shall not require a Bank to call any such indebtedness prior to maturity of the advance. The Bank shall deem any such liquidation a prepayment of the member's indebtedness, and the member shall be subject to any fees applicable to such prepayment. [58 FR 29469, May 20, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000 and further redesignated at 65 FR 44430, July 18, 2000] Subpart B—Advances to Housing Associates Source: 62 FR 12079, Mar. 14, 1997, unless otherwise noted. § 1266.16 Scope. Except as otherwise provided in §§ 1266.14 and 1266.17, the requirements of subpart A apply to this subpart. [58 FR 29469, May 20, 1993. Redesignated at 65 FR 44430, July 18, 2000] § 1266.17 Advances to housing associates. (a) Authority. (b) Collateral requirements Advances to housing associates. (i) Mortgage loans insured by the Federal Housing Administration of HUD under title II of the National Housing Act; or (ii) Securities representing a whole interest in the principal and interest payments due on a pool of mortgage loans insured by the Federal Housing Administration of HUD under title II of the National Housing Act. A Bank may only accept as collateral the securities described in this paragraph (b)(1)(ii) if the housing associate provides evidence that such securities are backed solely by mortgages of the type described in paragraph (b)(1)(i) of this section. (2) Certain advances to SHFAs. (A) The collateral described in § 1266.7(a)(1) or (2). (B) The collateral described in § 1266.7(a)(3). Solely for the purpose of facilitating acceptance of such collateral, a Bank may establish a cash collateral account for a housing associate that has satisfied the requirements of § 1264.3(b). (C) The other real estate-related collateral described in § 1266.7(a)(4), provided that such collateral comprises mortgage loans on one-to-four family or multifamily residential property. (ii) Prior to making an advance pursuant to this paragraph (b)(2), a Bank shall obtain a written certification from the housing associate that it shall use the proceeds of the advance for the purposes described in paragraph (b)(2)(i) of this section. (c) Terms and conditions General. (2) Advance pricing. (ii) A Bank shall apply the pricing criteria identified in § 1266.5(b)(2) equally to all of its member and housing associate borrowers. (3) Limit on advances. (d) Transaction accounts. (e) Loss of eligibility Notification of status changes. (2) Verification of eligibility. (3) Loss of eligibility. [58 FR 29469, May 20, 1993, as amended at 65 FR 203, Jan. 4, 2000; 65 FR 8263, Feb. 18, 2000. Redesignated and amended at 65 FR 44430, July 18, 2000; 67 FR 12851, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005; 81 FR 76298, Nov. 2, 2016]