single-family financing essentials: mortgage revenue bonds january 15, 2015 confidential hfa...

Single-Family Financing Essentials: Mortgage Revenue

Bonds

January 15, 2015

CONFIDENTIAL

HFA Institute 2015

2

HFA Financing Overview

City Securities Corporation CONFIDENTIAL

Housing Finance Authority

Capital Markets

FundingActivity

MortgageLending

First-time Home Buyers

$$$

HFAs profit from spread between lending and borrowing

3

HFA Financing Overview

• Traditionally, HFAs have funded lending through the sale of tax-exempt Mortgage Revenue Bonds (MRBs) under U.S. Code § 143 using allocated Private Activity Volume Cap. Lower interest payments since investors don’t pay

tax

Allows for below market-rate mortgage lending (usually)

Spread between single-family mortgage and bond rates limited to 1.125%City Securities Corporation CONFIDENTIAL

4

Investor View of MRBs


• Unique type of municipal bond Revenue stream from mortgages

o Not really a muni credit, more like ABS Prepayments make average lives

unpredictable Duration goes against the investor

o Mortgage Revenue Bonds sell at a premium to other comparable municipal bonds.

• Limited buyer base• Very much a small niche of the fixed income

markets

5

Has Anyone Seen an MRB?


6

Recent Market for MRBs


• In low interest rate environments, the difference between taxable and tax-exempt rates compresses, reducing or eliminating the funding advantage for HFAs.

Loss of funding advantage from tax exemption

7

Recent Market for MRBs


• MRB issuance decreased significantly in the financial crisis and has stayed low due to rate compression.

8

Current MRB Structures


• Over that past 5 years, HFAs have struggled to find MRB structures that provide competitive funding for single-family lending programs.

• Majority of recent bond issues have utilized one or more of the following structuring techniques:

Alter bond structure to attract non-traditional buyers

Use existing assets to provide subsidy to new bond issues

Use overall strength of bond indenture to support bond issues that won’t cashflow on their own

9

Attracting New Buyers


• Increasing Pool of Investors

• Make Bonds more Generic

• Structure bonds so that they can be sold to average life

10

Using Existing Assets


• Zero-Participation Mortgages

Transfer mortgages that are over tax-law restricted spread into a new deal

Use money that otherwise would have gone to IRS to subsidize lower mortgage rates

• Refunding Refinance higher rate outstanding bond issues

Basically create new zero participation mortgages

• Over-collateralization Additional mortgages allow bonds to pay down

faster

Create shorter average life for investors

11

Using Indenture Strength


• Front load bond maturities Structure bonds assuming some prepayment

level higher than 0% PSA

• Increase PAC size More bonds sold to average life reduces bond

yield

• “PAC in the Back” Structure Similar benefits to front-loaded maturities In addition, allows you to move up the yield

curve to where rates are lower

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“PAC In the Back” Bond Structure


BOND MATURITY REPORT - "Traditional" Bond Structure

== Serial Bonds == = 2029 Term Bonds = = 2034 Term Bonds = = 2038 Term Bonds = = 2044 Term Bonds = = Premium PAC Bonds = ====== Bond Debt Service =====

DateMaturing Principal Rate

Maturing Principal Rate





Maturing Principal Interest Paid Total Debt Serv

Jul 1, 2015 195,000 0.20% - - - - 115,000 3.125% 310,000 530,323 840,323

Jan 1, 2016 215,000 0.40% - - - - 130,000 3.125% 345,000 492,610 837,610

Jul 1, 2016 220,000 0.50% - - - - 130,000 3.125% 350,000 490,149 840,149

Jan 1, 2017 220,000 0.70% - - - - 130,000 3.125% 350,000 487,568 837,568

Jul 1, 2017 225,000 0.80% - - - - 130,000 3.125% 355,000 484,766 839,766

Jan 1, 2018 225,000 1.00% - - - - 130,000 3.125% 355,000 481,835 836,835

Jul 1, 2018 225,000 1.13% - - - - 135,000 3.125% 360,000 478,679 838,679

Jan 1, 2019 230,000 1.35% - - - - 135,000 3.125% 365,000 475,304 840,304

Jul 1, 2019 230,000 1.45% - - - - 135,000 3.125% 365,000 471,642 836,642

Jan 1, 2020 235,000 1.75% - - - - 135,000 3.125% 370,000 467,865 837,865

Jul 1, 2020 235,000 1.85% - - - - 140,000 3.125% 375,000 463,699 838,699

Jan 1, 2021 240,000 2.15% - - - - 140,000 3.125% 380,000 459,338 839,338

Jul 1, 2021 245,000 2.25% - - - - 140,000 3.125% 385,000 454,571 839,571

Jan 1, 2022 245,000 2.40% - - - - 145,000 3.125% 390,000 449,627 839,627

Jul 1, 2022 250,000 2.45% - - - - 145,000 3.125% 395,000 444,421 839,421

Jan 1, 2023 250,000 2.60% - - - - 150,000 3.125% 400,000 439,093 839,093

Jul 1, 2023 255,000 2.65% - - - - 150,000 3.125% 405,000 433,499 838,499

Jan 1, 2024 260,000 2.70% - - - - 150,000 3.125% 410,000 427,777 837,777

Jul 1, 2024 260,000 2.75% - - - - 155,000 3.125% 415,000 421,923 836,923

Jan 1, 2025 270,000 2.90% - - - - 155,000 3.125% 425,000 415,926 840,926

Jul 1, 2025 270,000 2.90% - - - - 160,000 3.125% 430,000 409,589 839,589

Jan 1, 2026 - 275,000 3.30% - - - 160,000 3.125% 435,000 403,174 838,174

Jul 1, 2026 - 280,000 3.30% - - - 160,000 3.125% 440,000 396,137 836,137

Jan 1, 2027 - 280,000 3.30% - - - 170,000 3.125% 450,000 389,017 839,017

Jul 1, 2027 - 285,000 3.30% - - - 170,000 3.125% 455,000 381,741 836,741

Jan 1, 2028 - 290,000 3.30% - - - 175,000 3.125% 465,000 374,382 839,382

Jul 1, 2028 - 295,000 3.30% - - - 175,000 3.125% 470,000 366,863 836,863

Jan 1, 2029 - 300,000 3.30% - - - 180,000 3.125% 480,000 359,261 839,261

Jul 1, 2029 - 305,000 3.30% - - - 180,000 3.125% 485,000 351,498 836,498

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== Serial Bonds == = 2029 Term Bonds = = 2034 Term Bonds = = 2038 Term Bonds = = 2044 Term Bonds = = Premium PAC Bonds = ====== Bond Debt Service =====







Maturing Principal Interest Paid

Total Debt Serv

Jan 1, 2030 - - 310,000 3.60% - - 185,000 3.125% 495,000 343,653 838,653

Jul 1, 2030 - - 315,000 3.60% - - 190,000 3.125% 505,000 335,183 840,183

Jan 1, 2031 - - 320,000 3.60% - - 190,000 3.125% 510,000 326,544 836,544

Jul 1, 2031 - - 325,000 3.60% - - 195,000 3.125% 520,000 317,815 837,815

Jan 1, 2032 - - 330,000 3.60% - - 200,000 3.125% 530,000 308,918 838,918

Jul 1, 2032 - - 340,000 3.60% - - 200,000 3.125% 540,000 299,853 839,853

Jan 1, 2033 - - 345,000 3.60% - - 205,000 3.125% 550,000 290,608 840,608

Jul 1, 2033 - - 350,000 3.60% - - 205,000 3.125% 555,000 281,195 836,195

Jan 1, 2034 - - 355,000 3.60% - - 210,000 3.125% 565,000 271,692 836,692

Jul 1, 2034 - - 360,000 3.60% - - 215,000 3.125% 575,000 262,021 837,021

Jan 1, 2035 - - - 370,000 3.75% - 215,000 3.125% 585,000 252,181 837,181

Jul 1, 2035 - - - 375,000 3.75% - 220,000 3.125% 595,000 241,884 836,884

Jan 1, 2036 - - - 380,000 3.75% - 225,000 3.125% 605,000 231,416 836,416

Jul 1, 2036 - - - 390,000 3.75% - 230,000 3.125% 620,000 220,775 840,775

Jan 1, 2037 - - - 390,000 3.75% - 235,000 3.125% 625,000 209,869 834,869

Jul 1, 2037 - - - 400,000 3.75% - 240,000 3.125% 640,000 198,884 838,884

Jan 1, 2038 - - - 410,000 3.75% - 240,000 3.125% 650,000 187,634 837,634

Jul 1, 2038 - - - 415,000 3.75% - 245,000 3.125% 660,000 176,197 836,197

Jan 1, 2039 - - - - 425,000 4.00% 250,000 3.125% 675,000 164,588 839,588

Jul 1, 2039 - - - - 430,000 4.00% 255,000 3.125% 685,000 152,181 837,181

Jan 1, 2040 - - - - 440,000 4.00% 260,000 3.125% 700,000 139,597 839,597

Jul 1, 2040 - - - - 445,000 4.00% 265,000 3.125% 710,000 126,734 836,734

Jan 1, 2041 - - - - 455,000 4.00% 270,000 3.125% 725,000 113,694 838,694

Jul 1, 2041 - - - - 465,000 4.00% 275,000 3.125% 740,000 100,375 840,375

Jan 1, 2042 - - - - 470,000 4.00% 280,000 3.125% 750,000 86,778 836,778

Jul 1, 2042 - - - - 480,000 4.00% 285,000 3.125% 765,000 73,003 838,003

Jan 1, 2043 - - - - 490,000 4.00% 290,000 3.125% 780,000 58,950 838,950

Jul 1, 2043 - - - - 500,000 4.00% 295,000 3.125% 795,000 44,619 839,619

Jan 1, 2044 - - - - 505,000 4.00% 305,000 3.125% 810,000 30,009 840,009

Jul 1, 2044 - - - - 515,000 4.00% 310,000 3.125% 825,000 15,144 840,144

5,000,000 2,310,000 3,350,000 3,130,000 5,620,000 11,490,000 30,900,000 18,564,274 49,464,274

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BOND MATURITY REPORT - "PAC in the Back"

== Serial Bonds == = 2029 Term Bonds = = 2034 Term Bonds = = 2038 Term Bonds = = Premium PAC Bonds = ====== Bond Debt Service =====







Jul 1, 2015 350,000 0.20% - - - - 350,000 494,156 844,156

Jan 1, 2016 355,000 0.40% - - - - 355,000 460,521 815,521

Jul 1, 2016 355,000 0.50% - - - - 355,000 459,811 814,811

Jan 1, 2017 355,000 0.70% - - - - 355,000 458,923 813,923

Jul 1, 2017 355,000 0.80% - - - - 355,000 457,681 812,681

Jan 1, 2018 355,000 1.00% - - - - 355,000 456,261 811,261

Jul 1, 2018 360,000 1.13% - - - - 360,000 454,486 814,486

Jan 1, 2019 360,000 1.35% - - - - 360,000 452,461 812,461

Jul 1, 2019 365,000 1.45% - - - - 365,000 450,031 815,031

Jan 1, 2020 365,000 1.75% - - - - 365,000 447,384 812,384

Jul 1, 2020 370,000 1.85% - - - - 370,000 444,191 814,191

Jan 1, 2021 370,000 2.15% - - - - 370,000 440,768 810,768

Jul 1, 2021 380,000 2.25% - - - - 380,000 436,791 816,791

Jan 1, 2022 380,000 2.40% - - - - 380,000 432,516 812,516

Jul 1, 2022 385,000 2.45% - - - - 385,000 427,956 812,956

Jan 1, 2023 390,000 2.60% - - - - 390,000 423,239 813,239

Jul 1, 2023 395,000 2.65% - - - - 395,000 418,169 813,169

Jan 1, 2024 400,000 2.70% - - - - 400,000 412,936 812,936

Jul 1, 2024 405,000 2.75% - - - - 405,000 407,536 812,536

Jan 1, 2025 415,000 2.90% - - - - 415,000 401,967 816,967

Jul 1, 2025 420,000 2.90% - - - - 420,000 395,949 815,949

Jan 1, 2026 - 425,000 3.30% - - - 425,000 389,859 814,859

Jul 1, 2026 - 430,000 3.30% - - - 430,000 382,847 812,847

Jan 1, 2027 - 440,000 3.30% - - - 440,000 375,752 815,752

Jul 1, 2027 - 450,000 3.30% - - - 450,000 368,492 818,492

Jan 1, 2028 - 455,000 3.30% - - - 455,000 361,067 816,067

Jul 1, 2028 - 465,000 3.30% - - - 465,000 353,559 818,559

Jan 1, 2029 - 470,000 3.30% - - - 470,000 345,887 815,887

Jul 1, 2029 - 480,000 3.30% - - - 480,000 338,132 818,132

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== Serial Bonds == = 2029 Term Bonds = = 2034 Term Bonds = = 2038 Term Bonds = = Premium PAC Bonds = ====== Bond Debt Service =====







Jan 1, 2030 - - 485,000 3.60% - - 485,000 330,212 815,212

Jul 1, 2030 - - 495,000 3.60% - - 495,000 321,482 816,482

Jan 1, 2031 - - 505,000 3.60% - - 505,000 312,572 817,572

Jul 1, 2031 - - 515,000 3.60% - - 515,000 303,482 818,482

Jan 1, 2032 - - 525,000 3.60% - - 525,000 294,212 819,212

Jul 1, 2032 - - 535,000 3.60% - - 535,000 284,762 819,762

Jan 1, 2033 - - 540,000 3.60% - - 540,000 275,132 815,132

Jul 1, 2033 - - 550,000 3.60% - - 550,000 265,412 815,412

Jan 1, 2034 - - 560,000 3.60% - - 560,000 255,512 815,512

Jul 1, 2034 - - 570,000 3.60% - - 570,000 245,432 815,432

Jan 1, 2035 - - - 585,000 3.75% - 585,000 235,172 820,172

Jul 1, 2035 - - - 595,000 3.75% - 595,000 224,203 819,203

Jan 1, 2036 - - - 605,000 3.75% - 605,000 213,047 818,047

Jul 1, 2036 - - - 620,000 3.75% - 620,000 201,703 821,703

Jan 1, 2037 - - - 630,000 3.75% - 630,000 190,078 820,078

Jul 1, 2037 - - - 640,000 3.75% - 640,000 178,266 818,266

Jan 1, 2038 - - - 655,000 3.75% - 655,000 166,266 821,266

Jul 1, 2038 - - - 325,000 3.75% 340,000 3.125% 665,000 153,984 818,984

Jan 1, 2039 - - - - 680,000 3.125% 680,000 142,578 822,578

Jul 1, 2039 - - - - 695,000 3.125% 695,000 131,953 826,953

Jan 1, 2040 - - - - 710,000 3.125% 710,000 121,094 831,094

Jul 1, 2040 - - - - 725,000 3.125% 725,000 110,000 835,000

Jan 1, 2041 - - - - 735,000 3.125% 735,000 98,672 833,672

Jul 1, 2041 - - - - 750,000 3.125% 750,000 87,188 837,188

Jan 1, 2042 - - - - 765,000 3.125% 765,000 75,469 840,469

Jul 1, 2042 - - - - 780,000 3.125% 780,000 63,516 843,516

Jan 1, 2043 - - - - 795,000 3.125% 795,000 51,328 846,328

Jul 1, 2043 - - - - 815,000 3.125% 815,000 38,906 853,906

Jan 1, 2044 - - - - 830,000 3.125% 830,000 26,172 856,172

Jul 1, 2044 - - - - 845,000 3.125% 845,000 13,203 858,203

7,885,000 3,615,000 5,280,000 4,655,000 9,465,000 30,900,000 17,560,332 48,460,332

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Bond Amounts:

Bond Type Traditional PAC in the Back

Serial Bonds 5,000,000 7,885,000

2029 Term Bonds 2,310,000 3,615,000

2034 Term Bonds 3,350,000 5,280,000

2038 Term Bonds 3,130,000 4,655,000

2044 Term Bonds 5,620,000 N/A

Premium PAC Bonds 11,490,000 9,465,000

Total Bonds 30,900,000 30,900,000

Total Bond Yield (@ 100% PSA) 3.30% 3.12%

The Municipal Securities Rulemaking Board (the “MSRB”) has adopted MSRB Rule G-23 (“G-23”). G-23 prohibits a broker, dealer or municipal securities dealer (each, a “Dealer”) from acting as a Financial Advisor or Municipal Advisor, as defined in Section 15B of the Securities Exchange Act of 1934, as amended, to an issuer of municipal securities on a particular issue of municipal securities and subsequently switching roles to act as an underwriter or placement agent with respect to the same particular issue of municipal securities. MSRB Notice 2011-29 (the “G-23 Notice”) defines “underwritings” to be both (i) the acquisition, either alone or as a participant in a syndicate or other similar account formed for purpose of acquiring an issue of municipal securities, of all or any portion of an issue of municipal securities, directly or indirectly, from the issuer, as principal and (ii) acting as an agent for the issuer in arranging the placement of such issue. Additionally, the MSRB states in the G-23 Notice, “the primary role of an underwriter is to purchase securities in an arm’s-length commercial transaction between the issuer and the underwriter” and, “the underwriter has financial and other interests that differ from those of the issuer.” Furthermore, G-23 states that an underwriter may provide advice concerning the structure, timing, terms, and other similar matters related to the issuance of municipal securities to the extent the underwriter discloses that such advice is provided with respect to the underwriting and not in relation to a financial advisory relationship, as specifically defined in G-23.

The MSRB has also adopted MSRB Rule G-17 (“G-17”). In accordance with MSRB Notice 2012-25 (the “G-17 Notice”), a Dealer, which is involved as the underwriter in the sale of municipal securities on a negotiated basis (the “Underwriter”), is required to provide to the Municipal Entities, as defined in Section 15B of the Securities Exchange Act of 1934, as amended, that are involved in the issuance of such municipal securities the following written disclosures: (a) G-17 requires the Underwriter to deal fairly at all times with both municipal issuers and investors; (b) the Underwriter’s primary role in any anticipated purchase and sale of such municipal securities is to purchase the municipal securities with a view to distribution in an arms-length commercial transaction with such Municipal Entities, and the Underwriter has financial and other interests that differ from those of such Municipal Entities; (c) unlike a Municipal Advisor, the Underwriter does not have a fiduciary duty to such Municipal Entities under the federal securities laws, and is, therefore, not required by federal law to act in the bests interests of such Municipal Entities without regard to its own financial or other interests; (d) the Underwriter has a duty to purchase such municipal securities from such Municipal Entities at a fair and reasonable price, but must balance that duty with the Underwriter’s duty to sell such municipal securities to investors at prices that are fair and reasonable; and (e) the Underwriter will review the official statement for such municipal securities in accordance with, and as a part of, its responsibilities to investors under the federal securities laws, as applied to the facts and circumstances of the Transaction. Furthermore, under G-17 the Underwriter may not recommend that such Municipal Entities not retain a Municipal Advisor.

Accordingly, and in compliance with G-17, G-23, the G-17 Notice and the G-23 Notice, City Securities Corporation (“CSC”) hereby expressly states that: (a) CSC is acting as an underwriter or placement agent under G-17 and G-23 and not as a Financial Advisor or Municipal Advisor in connection with all services proposed and/or provided with respect to any of the matters set forth in the City Securities Corporation Possible Financing Options attached to these disclaimers (the “Financial Presentation Materials”); (b) any services provided by CSC as they relate to its role as underwriter or placement agent should not be construed by anyone to be those provided by a Financial Advisor or Municipal Advisor and such notice, as required under G-23 and the G-23 Notice and described above, is hereby provided; (c) the written disclosures, as required under G-17 and the G-17 Notice and described above with respect to CSC acting as the Underwriter, are hereby provided to each recipient of the Financial Presentation Materials; and (d) it is CSC’s understanding that each Municipal Entity that is involved in the issuance of one or more of the municipal securities identified in the Financial Presentation Materials has consulted, or will consult, with such Municipal Entity’s own legal and financial advisors to the extent such Municipal Entity deemed, or will deem, appropriate in connection with the issuance and sale of any such municipal securities.

Disclaimer

17City Securities Corporation CONFIDENTIAL

18

Headquarters

30 South Meridian Street

Suite 600

Indianapolis, IN 46204

Linda Matkowski

Executive Vice President

[email protected]

317.808.7245

©2015 City Securities Corporation. All Rights Reserved CONFIDENTIAL

Denver Office

2373 Central Park Blvd.

Suite 100

Denver, CO 80238

Marc Krasner

Senior Vice President

[email protected]

303.803.1606

single-family financing essentials: mortgage revenue bonds january 15, 2015 confidential hfa...

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