2015 annual conference: single-family financing dialogue september 28, 2015 managing unprecedented...

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2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs Presented by Ansel Caine

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Page 1: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

2015 ANNUAL CONFERENCE:SINGLE-FAMILY FINANCING DIALOGUE

September 28, 2015

Managing Unprecedented Diversity and Opportunities for HFA Single Family ProgramsPresented by Ansel Caine

Page 2: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 3: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 4: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 5: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 6: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 7: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 8: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 9: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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?

Page 10: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 11: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

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

Page 12: 2015 ANNUAL CONFERENCE: SINGLE-FAMILY FINANCING DIALOGUE September 28, 2015 Managing Unprecedented Diversity and Opportunities for HFA Single Family Programs

Ansel Caine

Caine Mitter & Associates Incorporated

(212) 686 - [email protected]

225 West 35th Street, Suite 900New York, NY 10001