2015 annual conference: single-family financing dialogue september 28, 2015 managing unprecedented...
TRANSCRIPT
2015 ANNUAL CONFERENCE:SINGLE-FAMILY FINANCING DIALOGUE
September 28, 2015
Managing Unprecedented Diversity and Opportunities for HFA Single Family ProgramsPresented by Ansel Caine
HFA Single Family Funding Activity 2012 - Present
Caine Mitter Single Family Activity
2012 2013 2014
$422 mm$396 mm
$527 mm$515 mm
$1,629 mm$309 mm
Jan-Aug 2015
$1,168 mm$121 mm
2012 2013
50%50%
67%33%
■ MRB ■ MBS Sale
Source: “Evolving Mortgage Funding Strategy Has Mixed Impact on Business Models”, Moody’s Investors Service, June 30, 2015
All HFAs
Issuance activity where Caine Mitter advised on MRB sale or managed pipeline / bid MBS
2014 Early 2015
75%25%
74%26%
■ MRB ■ MBS Sale
Loan Program
Greater variety of HFA single family loan products
Broader universe of HFA borrowers
Funding / Hedging Options
Multiple funding options in both the bond and TBA markets
Wide range of hedging strategies to manage pipeline interest rate risk
Expanding broker/dealer relationships
More Single Family Financing Options
Examples of Single Family Options That Are Working
Loan Programs Funding / Hedging Options
Below Market Interest Rate
Down Payment Assistance
MCC
Conventional
Government
First-Time Homebuyer
Non-First-Time Homebuyer
Refi
Low/Moderate Income
Not Income Restricted
Traditional MRB
VRDO
Floating to Fixed Swap
MBS Sale Whole Loan Sale
FRN Direct Purchase
Zero
Pass-Through MRB
TBA
Unused Bond Proceeds
Uninvested Cash
Loan Program and Funding / Hedging Compatibility
Loan Programs Funding / Hedging Options
Below Market Interest Rate
Down Payment Assistance
MCC
Conventional
Government
First-Time Homebuyer
Non-First-Time Homebuyer
Refi
Low/Moderate Income
Not Income Restricted
Traditional MRB
VRDO
Floating to Fixed Swap
MBS Sale Whole Loan Sale
FRN Direct Purchase
Zero
Pass-Through MRB
TBA
Unused Bond Proceeds
Uninvested Cash
MRB Qualified Mortgage w/ DPA
All Funding Options Compatible
Loan Program and Funding / Hedging Compatibility
Loan Program Funding / Hedging Options
Below Market Interest Rate
Down Payment Assistance
MCC
Conventional
Government
First-Time Homebuyer
Non-First-Time Homebuyer
Refi
Low/Moderate Income
Not Income Restricted
Traditional MRB
VRDO
Floating to Fixed Swap
MBS Sale Whole Loan Sale
FRN Direct Purchase
Zero
Pass-Through MRB
TBA
Unused Bond Proceeds
Uninvested Cash
…Add an MCC… …TBA Program Compatible
Loan Program and Funding / Hedging Compatibility
Loan Program Funding / Hedging Options
Below Market Interest Rate
Down Payment Assistance
MCC
Conventional
Government
First-Time Homebuyer
Non-First-Time Homebuyer
Refi
Low/Moderate Income
Not Income Restricted
Traditional MRB
VRDO
Floating to Fixed Swap
MBS Sale Whole Loan Sale
FRN Direct Purchase
Zero
Pass-Through MRB
TBA
Unused Bond Proceeds
Uninvested Cash
…Remove MCC; Add Below Market Interest Rate Target…
…MRB Compatible; Zeros Used to Achieve Full Spread
Other Important Considerations
Loan Program
Limitations Based on Servicing Structure
- HFA services (w/ or w/o sub-servicer)
- Multiple bank servicers
- Single master servicer (bank or HFA)
Down Payment Assistance Structure- Loan vs grant
- Amortizing vs due on sale
- Interest bearing vs zero percent
- Funding source
Non-Profit Entity Competition- No MRB code-compliance
- Streamlined operations
Lender Participation
Funding / Hedging Options
Best Execution- Which funding option offers the
best return?
Specified Pool Value- Loan balance, CRA, current issue
month pay ups
Single Issuer vs Multi-Issuer Pools
Qualified Hedge Identification
Cost Hedging / Negative Arbitrage
Access to Warehousing Funds
Availability of Volume Cap
Risk Tolerance for Variable Rate Bonds and Interest Rate Swaps
Navigating All of the Options: Lending
Lending Considerations for Single Family Product Selection:
What are the most effective loan products?- Keeping a simple vs diverse product portfolio for broad lender-base
How will lender participation be built?- Marketing, financial incentives, degree of flexibility
- Borrow and adapt ideas from successful homeownership programs
How will the interest rate be set?- Volume vs income on each loan
- Funding / hedging costs
Will MRB Code Compliance be Required?- Is there competition from non-profit entities?
- Is MRB funding attractive enough to get mortgage rate down?
Navigating All of the Options: Funding
Present Value Economics by Funding Source
100% PSA 200% PSA 300% PSA-0.5
0.5
1.5
2.5
3.5
4.5
5.5
6.5Traditional MRB
MRB PAC / Swap
MRB Pass-Through
MBS Sale
Notes Loans being funded are
market rate, government insurance, with 3.0% DPA
MRB executions based on current rates
Traditional MRB is level debt structure with back ended, 5yr PAC @ 100% PSA
MRB PAC/Swap is level debt structure with back ended, 5yr PAC @ 100% PSA, 33% swapped VRDOs
Vehicles for Generating Annuity Income
Mortgage Revenue Bond Programs
- Ongoing spread keeps generating fees
- Targeting high rate bonds by cross calling or using excess revenues will increase profitability
TBA / MBS Secondary Market Programs
- Upfront gains can be used to invest in the MBS program
- If an MBS sale is the best present value execution, then the long-term returns will be better than the spread generated from mortgage revenue bonds
- Cash intended for MBS investment is a hedge for program and lowers overall program cost
- MBS investments can be used to collateralize an existing bond indenture or fund uninvested reserves
Ansel Caine
Caine Mitter & Associates Incorporated
(212) 686 - [email protected]
225 West 35th Street, Suite 900New York, NY 10001