- outstanding advances [ii]made by the Federal Home Loan Bank of San Francisco to Washington Mutual Bank as of September 30, 2008 -- $63.283 billion. [iii]
- outstanding advances from the Federal Home Loan Bank of Seattle to Washington Mutual Bank FSB as of September 30, 2008 -- $15.713 billion. This includes $3 billion in Federal Home Loan Bank of New York advances from the acquisition of Dime Savings Bank of New York, FSB, a former member of the FHL Bank of New York."
- total “Pledged Loans” to Federal Home Loan Banks as of September 30, 2008 -- $78.999 billion.
On September 30, 2008 Washington Mutual Bank and Washington Mutual Bank FSB had a total of $78.999 billion in "Pledged Loans" with the Federal Home Loan Bank. This indicates that prior to September 25, 2008, the date that the Office of Thrift Supervision seized the failed Washington Mutual Bank and placed it in receivership with the FDIC, that the Federal Home Loan Bank, if acting responsibly, had taken possession of WMB and WMBfsb loan collateral (Notes) valued in excess of $78,999 billion – thus eliminating any possibility that JPMorgan Chase Bank NA may have the special status of "holder in due course.”[iv]
- No delivery (“blanket lien”),[vi] or
- Segregation of collateral against advances at the member’s site - often referred to as a “listing;” or
- “Delivery,” i.e. the delivery of loans to the Federal Home Loan Bank or third party custodian. All securities are delivered to the Federal Home Loan Bank or its third-party custodian
The FHL Banks limit their risk of loss on advance by:
- Securing borrowings with sufficient acceptable collateral;
- Having the ability to demand additional collateral or substitute collateral, during the life of an advance;
- Monitoring the creditworthiness and financial condition of borrowers, and
- Performing collateral reviews and valuation procedures.
Furthermore the FHL Bank
- Gives the FHL Banks the authority to protect their security position with respect to advances, including requiring the posting of additional collateral, and
- Grants the FHLBanks a priority over the claims and rights of any party, including any receiver, conservator, trustee or similar lien creditor.
FHLBanks have several ways to protect their security interest if a member borrower’s financial condition deteriorates.
- First, an FHLBank may change collateral status from blanket/listing to delivery. This change can result in increased costs for the members such as charges for delivery and release of loan, provision of regular reports that updates information on each loan delivered and ancillary expenses associated with preparing the loans for delivery (copying, packaging, and shipping).
- Second, most FHLBanks will shorten the term of borrowing as well as reduce the available credit line for members with deteriorating risk ratings.
- And finally, collateral valuation may be lowered.
U.C>C. § 3-302. Holder in Due Course.
- (a) Subject to subsection (c) and Section 3-106(d), "holder in due course" means the holder of an instrument if:
- (1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
- (2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 3-305(a).
- (b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument.
- (c) Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor's sale or similar proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in interest to an estate or other organization.
- (d) If, under Section 3-303(a)(1), the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.
- (e) If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.
- (f) To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.
- (g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.