Using Housing Finance Authority Bonds to Access CDA Extra Funding

HFA Bonds & Community Development Advances

Since the purpose and impact of HFA bonds is aligned with the mission of FHLBank Boston to support housing and economic development across New England, they can be used to satisfy eligibility requirements for the Community Development Advance Extra (CDA Extra) program. CDA Extra Advances offer members discounted rates across a variety of advance structures, helping institutions more effectively address liquidity needs and manage interest-rate risk.

Examples of CDA Extra funding structures include:

• Bullet Structures: The Classic Advance is a fixed-term, fixed-rate solution available through CDA Extra with maturities ranging from six months to 20 years. Depending on the selected term, members typically receive a rate discount of 5 to 20 basis points compared with standard funding.
• Amortizing Structures: CDA Extra funding can also be used with amortizing advances. These structures offer great flexibility, allowing members to customize both the amortization period (for example, 20 years) and the final maturity or balloon date (for example, 5 years) to align with asset and liability management objectives.
• Forward-Starting Structures: While CDA Extra advances are often funded immediately, members may elect to delay disbursement for up to two years. This forward-starting feature can support broader balance-sheet management strategies. During the forward period, members are not required to utilize collateral capacity or purchase activity stock. When the advance is ultimately disbursed, standard collateralization and capitalization requirements would apply.
• Option-Embedded Structures: CDA Extra funding can be paired with the Member-Option Advance, which combines longer-term fixed-rate funding with the ability to repay the advance at predetermined intervals without incurring a prepayment fee. This flexibility can be particularly valuable for institutions with amortizing and/or prepayable assets, as the member-owned optionality can balance the risk of contraction and extension.

HFA Bonds & Collateral Capacity

HFA bonds can be a useful component to a member institution’s investment portfolio because of the yields and spreads they offer relative to their credit and interest-rate risk profile.

From a total balance sheet perspective, HFA bonds can also support liquidity management efforts because they are often eligible to be pledged as collateral and can add to the members’ capacity to borrow. As outlined in the Product & Solutions Guide, municipal securities fall under the other estate-related collateral (ORERC) category. Municipal bonds’ eligibility as collateral is subject to minimum levels of issuance size and ratings, but HFA bonds are generally brought to market in large dollar amounts and are highly rated by the Nationally Recognized Statistical Rating Organizations (NRSRO), so HFA bonds tend to easily meet the criteria thresholds. If deemed eligible, municipal securities receive a 15% haircut, meaning members can borrow up to 85% of the security’s market value using advances.

Balance Sheet Management & Supporting Affordable Housing

Flexible Funding

Recent market conditions have created challenges and opportunities for FHLBank Boston members. Our financial strategies group has developed a suite of analytical tools designed to help you identify the funding solutions that best fit the unique needs of your balance sheet. Please contact me at 617-292-9644 or andrew.paolillo@fhlbboston.com ​or reach out to your relationship manager for more details.

FHLBank Boston does not act as a financial advisor, and members should independently evaluate the suitability and risks of all advances. The content of this article is provided free of charge and is intended for general informational purposes only. FHLBank Boston does not guarantee the accuracy of third-party information displayed in this article, the views expressed herein do not necessarily represent the views of FHLBank Boston or its management, and members should independently evaluate the suitability and risks of all advances. Forward-looking statements: This article uses forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is based on our expectations as of the date hereof. All statements, other than statements of historical fact, are “forward-looking statements,” including any statements of the plans, strategies, and objectives for future operations; any statement of belief; and any statements of assumptions underlying any of the foregoing. The words “expects”, “may”, “likely”, “could”, “to be”, “will,” and similar statements and their negative forms may be used in this article to identify some, but not all, of such forward-looking statements. The Bank cautions that, by their nature, forward-looking statements involve risks and uncertainties, including, but not limited to, the uncertainty relating to the timing and extent of FOMC market actions and communications; economic conditions (including effects on, among other things, interest rates and yield curves); and changes in demand and pricing for advances or consolidated obligations of the Bank or the Federal Home Loan Bank system. The Bank reserves the right to change its plans for any programs for any reason, including but not limited to legislative or regulatory changes, changes in membership, or changes at the discretion of the board of directors. Accordingly, the Bank cautions that actual results could differ materially from those expressed or implied in these forward-looking statements, and you are cautioned not to place undue reliance on such statements. The Bank does not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.