Policies and Plans

Responsible Lending Policy

The Federal Home Loan Bank of Seattle (“Seattle Bank”) supports the expansion of fair and equitable home ownership opportunities. To discourage predatory lending practices, which are inconsistent with such opportunities, and to protect the Seattle Bank from potential liabilities, the Seattle Bank has established the following anti-predatory lending policy (“APL Policy”) with respect to residential mortgage loans and securities backed by residential mortgage loans pledged to it as collateral (“Residential Mortgage Collateral”). The APL Policy is not intended to supplement industry regulators’ role of monitoring and regulating actual member lending activity for compliance with applicable laws. It is intended to underscore the Seattle Bank’s support of fair lending practices and to protect the Seattle Bank and its shareholders through clear communication of what will constitute qualifying collateral.

The Seattle Bank requires that at a minimum Residential Mortgage Collateral comply with federal, state and local anti-predatory lending laws applicable to the pledgor and other similar credit-related consumer protection laws, regulations, orders and federal banking agencies published Interagency Guidance on Nontraditional Mortgage Product Risks on October 4, 2006 and Statement on Subprime Mortgage Lending on July 10, 2007, designed to prevent or regulate abusive and deceptive lending practices and loan terms (collectively, “Anti-Predatory Lending Laws”). For example, Anti-Predatory Lending Laws may prohibit or limit certain practices and characteristics, including, but not limited to the following:

• Requiring the borrower to obtain prepaid, single-premium credit life, credit disability, credit unemployment, or other similar credit insurance;
• Requiring mandatory arbitration provisions with respect to dispute resolution in the loan documents;
• Charging prepayment penalties for the payoff of the loan beyond the early years of such loan;
• Steering a borrower toward a mortgage with higher rates and/or fees even when the borrower could qualify under a less costly financing alternative;
• Approving a mortgage based solely on the value of the property; or
• Lending without regard to a borrower’s ability to repay the mortgage.

Any Residential Mortgage Collateral that does not comply with all Anti-Predatory Lending Laws applicable to the pledgor will be ineligible as collateral to support advances or other activity with the Seattle Bank. Additionally, the Seattle Bank will not give collateral value for any Residential Mortgage Collateral on owner-occupied property, whether pledged individually or as part of a private label (non-agency) mortgage backed security, if it meets one or more of the following criteria:

• The annual rates and/or points and fees charged for the loan exceed the thresholds of the Home Equity Ownership Protection Act of 1994 (HOEPA) and its implementing regulations (Federal Reserve Regulation Z);
• The loan has been identified by a member’s primary federal regulator as possessing predatory characteristics;
• The loan includes prepaid, single-premium credit life insurance;
• The loan includes penalties in connection with the prepayment of the mortgage beyond the first five years of the loan;
• The loan contains a mandatory arbitration clause with respect to dispute resolution, to the extent that such requirements are prohibited or limited by applicable Anti-Predatory Lending Laws.

Pledgors are responsible for avoiding all unlawful practices and terms prohibited by Anti-Predatory Lending Laws applicable to the pledgor, regardless of whether they originate or purchase the Residential Mortgage Collateral being pledged to the Seattle Bank. The Seattle Bank will take those steps it deems reasonably necessary in order to confirm or monitor pledgors’ compliance with this policy. The Seattle Bank will adopt procedures to monitor for member compliance with this APL policy which will:

1. Ensure that all members have executed the representation and warranty Certification;
2. Ensure that all pledging subsidiaries and affiliates of members have executed the representation and warranty Certification;
3. Review member regulator exam reports for findings pertaining to fair lending and/or abusive lending practices;
4. Monitor member regulator alerts for newly issued supervisory agreements, memoranda of understanding, or cease and desist orders pertaining to unfair lending and/or abusive lending practices;
5. If abusive lending practices are identified by the member’s regulator or if Seattle Bank staff identifies APL abuses, then the member will be required to undertake a review of its policy and procedures for compliance with the Seattle Bank’s collateral policies. At its discretion, the Seattle Bank may permit such a review to be conducted by the member’s internal auditor or the Seattle Bank may choose to conduct the review itself or use a third party, at the expense of the member.
   
   For mortgage backed securities, the Seattle Bank will rely on the member’s (or member’s pledging subsidiary or affiliate) executed representation and warranty certifications as the key indicator of compliance.

In addition, the Seattle Bank reserves the right to require evidence reasonably satisfactory to the Seattle Bank that Residential Mortgage Collateral does not violate Anti-Predatory Lending Laws applicable to the pledgor. With respect to Residential Mortgage Collateral purchased by the pledgor, the pledgor is responsible for conducting due diligence that it deems sufficient to support its certification or indemnification agreements with the Bank.

In addition to the terms and conditions of the Seattle Bank’s ASDA, each pledgor must execute a representation and warranty agreement with the Seattle Bank that: (1) certifies its understanding and compliance with Seattle Bank’s APL Policy and all Anti-Predatory Lending Laws applicable to the pledgor; and (2) certifies it will maintain qualifying collateral and will (a) substitute eligible collateral for any Residential Mortgage Collateral that does not comply in all material respects with Anti-Predatory Lending Laws applicable to the pledgor or this APL Policy; or (b) indemnify, defend and hold the Seattle Bank harmless from and against all losses, damages, claims, actions, causes of action, liabilities, obligations, judgments, penalties, fines, forfeitures, costs and expenses, including, without limitation, legal fees and expenses, that result from the pledge of any Residential Mortgage Collateral that does not comply in all material respects with Anti-Predatory Lending Laws applicable to the pledgor or this APL Policy.

The Seattle Bank will not knowingly accept as eligible collateral Residential Mortgage Collateral that violates Anti-Predatory Lending Laws applicable to the pledgor or this APL Policy. If the Bank knows or discovers that such Residential Mortgage Collateral violates Anti-Predatory Lending Laws applicable to the pledgor or this APL Policy, the Bank may, in addition to all available rights and remedies at law or in equity (1) require the pledgor to substitute eligible collateral, (2) value such Residential Mortgage Collateral at zero for collateral purposes, and (3) require the pledgor to undertake a review of its policies, practices, and procedures for complying with the Seattle Bank’s collateral policies.

The foregoing policy addresses collateral pledged to the Seattle Bank. Residential mortgage loans purchased or acquired by the Bank from members will be governed by the terms set forth in the MPP Guide.