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Maturity-Linked
Funding
Maturity-Linked Funding
Funds are deposited in or loaned to a bank for a time matching the maturity of the
associated bank loan. Sometimes the bank pays a below market interest rate on the funds
and in turn will make its loans to eligible borrowers at below-market interest rates.
Criteria
- Banks using maturity-linked funding must meet program requirements such as using the
funds for housing or funding companies that create or retain jobs.
- Eligible projects may include fixed assets and working capital for new, existing and
expanding businesses or for housing development. A business must be located in, or moving
to, the jurisdiction offering the program.
- Deposits must be secured or collateralized by government debt securities, treasuries, or
other securities as specified. Other potential sources are philanthropic, foundation or
pension funds.
Uses
- Maturity-linked funds provide an incentive for banks to provide longer-maturity loans.
- Uses include business expansion, working capital and home mortgages.
Structure
- Banks wishing to participate in linked funding programs must apply to the sponsoring
entity.
- The interest paid by the lender is sometimes indexed several basis points below the cost
of funds on the market.
- Rates are fixed for the linked funding period of the deposit.
- Terms vary from one to five years on most business financing programs and up to 15 years
with housing finance programs.
COMMUNITY INVESTMENT PROGRAM (CIP)
Federal Home Loan Banks (FHLB)
Federal Home Loan Banks advance funds to lenders to allow them to provide
maturity-linked and moderately subsidized loan assistance for eligible activities.
Eligibility
- Lenders must be members of the Federal Home Loan Bank.
- Funds may be for purchase, construction or rehabilitation of single family or
multi-family affordable housing units or for commercial and economic development
activities.
- Household income of housing unit residents must be below 115 percent of the area median.
- Commercial and economic development activities must be located in or benefit low- or
moderate-income neighborhoods.
- Funds are awarded to lenders who score the most points according to FHLB criteria,
objectives and priorities.
Program
- Advances provide funds to FHLB members at slightly reduced interest rates.
- Maturities can range from one month to finance delays in closing reimbursements from
state mortgage revenue bond programs to up to 20 years for eligible housing and commercial
projects.
- Program objectives include promoting long-term retention of affordable housing and
community stability, community involvement, and innovation.
- The price of advanced funds is based on the estimated cost to the FHLB of consolidated
obligations. Banks with an outstanding rating on Community Reinvestment Act activities may
receive a small discount on the cost of funds.
Contact
District Federal Home Loan Bank or Federal
Home Loan Bank
FEDERAL HOME LOAN BANK ADVANCED FUNDS
Federal Home Loan Bank System (FHLB)
Federal Home Loan Banks advance funds to member banks to ensure the availability of
funds and mitigate risks associated with mortgage lending.
Eligiblity
- Banks must be members and purchase stock in the Federal Home Loan Bank system.
- Banks must have a specified level of home mortgages in their portfolios to be eligible
for advances.
- Funds must be used for activities related to residential housing finance.
Uses
- Advances can help minimize banks' risk in interest rate variability by providing funds
at a fixed interest rate for a fixed period of time.
- Banks' basis risk, when funding is priced using a different benchmark than the assets on
which a loan is made, can be balanced by borrowing FHLB funds through different funding
programs.
- Advances can help balance lenders' portfolios by diversifying the sources and maturities
of their funding base.
Structure
- Twelve regional Federal Home Loan Banks make funds available to banks in their regions.
- Programs vary and may have flexible interest rates and terms negotiated between the
member bank and and the FHLB.
Contact
Federal Home Loan Bank
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