How HFAs Are Financing Homeownership in a Complex Time October 20, 2014 Joe Tait [email protected].
Jan 29, 2016
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2
PLANNING AHEAD IN A COMPLEX TIME – PROJECTIONS VS. ACTUAL
• US Treasury’s NIBP effectively served as QE for HFAs
• Post NIBP – consensus forecast was for higher rates – in 2011 waiting seemed to be a viable alternative
• Additional Fed actions created a different reality
Data Source: 1) 10-Yr UST (Forecast 1-Yr Prior) – Bloomberg consensus projection of the 10-Year UST rate, 4 quarters ahead, based on economic forecasts from approximately 70 firms (see function “ECFC”), 2) 10-Yr UST (Actual) is from the US Federal Reserve’s H-15 Historical Data for the 10-Year Constant Maturity UST.
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
10-Yr UST (FORECAST 1-YR PRIOR)
10-Yr UST (ACTUAL)
NIBP = QE 1&2 for HFAs
Forecasts made atend of QE2
3
PLANNING AHEAD IN A COMPLEX TIME – QE3 – NO SUBSIDY FOR HFAS!
• Bonds from 3rd Quarter 2012 to 2nd Quarter 2013: Blended Refunding & New Money; Pass-Through; Taxable
• Mid 2013 “Taper talk” – bonds became less effective in higher rate environment as Fed continues MBS buying
• Number of TBA based programs grows
Data Source: 1) 10-Yr UST (FORECAST 1-Yr Prior) – Bloomberg consensus projection of the 10-Year UST rate, 4 quarters ahead, based on economic forecasts from approximately 70 firms (see function “ECFC”); 2) 10-Yr UST (Actual) is from the US Federal Reserve’s H-15 Historical Data for the 10-Year Constant Maturity UST; 3) Net Fed TBA Commitment based on publically released NY Federal Reserve data for MBS purchases and sales.
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
$0
$20
$40
$60
$80
$100
$120
$140
$160
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
QE3: Net Fed TBA Commitment ($ Bn)
10-Yr UST (FORECAST 1-YR PRIOR)
10-Yr UST (ACTUAL)
QE3 Begins Sept.NO QE3 FOR
HFAs!
More HFAs Start TBA Based Financing Alternatives ----->
Forecasts made at start of QE3
2.17%
4
HOW ARE HFAS FINANCING HOMEOWNERSHIP TODAY?
• Most HFAs now have the ability to use MBS, and some have both whole loan and MBS programs
• Large # of GNMA S.F. Issuers
• Few HFAs remain that do not have the ability to use MBS, either as a servicer/issuer or through a master servicer
• “Turnkey” – guaranteed price; eliminates market and pipeline risks; government and conventional
• Bond only programs include larger HFAs with ample refunding's/0%s and smaller HFAs funding low volume
• Certain HFAs continue to use Fannie Mae cash window for conventionals
• Financing alternatives not mutually exclusive
22
11
7
110
3rd Party "Turnkey"Provider
HFA In-House
HFA Managed by FA
Other
Bonds
2222
7
MBS
MBS (+ GN SF Issuer)
Whole Loan Only
5
FINANCING HOMEOWNERSHIP IN A COMPLEX TIME - EVALUATE ALTERNATIVES AND EXECUTE USING LOWEST COST OF FINANCERecent Comparison of 3rd Party TBA-Based “Turnkey” vs. Bond Funded Single Family FinancingRecent Comparison of 3rd Party TBA-Based “Turnkey” vs. Bond Funded Single Family Financing
Standard Bond Structure Pass-ThroughSerials, PAC, Terms Pre-Originated Loan Rate Same as Bonds Loan Rate Set to "Market"
Origination Period 3 months 100% deposited at closing Continuous Continuous
Program/Bond Par 25,000,000 25,000,000 25,000,000 25,000,000 Premium - - 1,234,500 574,250
Total 25,000,000 25,000,000 26,234,500 25,574,250
Structure $3.185 mm Serials 3.125% coupon at 100.00% price Turnkey Purchase Price = 104.938% Turnkey Purchase Price = 102.297%$1.315 mm 2028 Term 3.125% yield (as of 10/6/2014) (as of 10/6/2014)$2.040 mm 2033 Term$2.630 mm 2038 Term
$12.000 mm PAC$3.830 mm 2044 Term
Mortgage Rate 4.370% 4.330% 4.375% 4.000%Full-Spread Full-Spread
Mortgage Yield 4.239% 4.262% NA NABond Yield 3.114% 3.145% NA NA
Spread 1.125% 1.116% NA NA
PV Issuer Fee/Residual (100% PSA) 1,260,997 1,158,723 NA NAPV Issuer Fee/Residual (200% PSA) 1,225,998 853,737 PV Issuer Fee/Residual (300% PSA) 1,158,976 678,597 NA NA
PV Premium Raised - 1,234,500 574,250 DPA Grant - - -
Reserve Fund (275,000) (85,000) NA NACOI (est. $10/bond) (250,000) (250,000) NA NA
NPV (100% PSA) 735,997 823,723 1,234,500 574,250 NPV (200% PSA) 700,998 518,737 1,234,500 574,250 NPV (300% PSA) 633,976 343,597 1,234,500 574,250
Turnkey/TBA
Large PAC - lean on resolution
Risk
6
PLANNING AHEAD IN A COMPLEX TIME – WHAT DOES THE FUTURE HOLD?
• QE3 ends in two weeks
• 2015Q2 10-Year UST forecast is now 3% … maybe 2.5% by end of week?
• Interest rates in US now appear to be driven more by external factors rather than domestic fundamentals
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
$0
$20
$40
$60
$80
$100
$120
$140
$160
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
QE3: Net Fed TBA Commitment ($ Bn)
10-Yr UST (FORECAST 1-YR PRIOR)
10-Yr UST (ACTUAL)
10-Yr GER Bond Yield
?
End of QE3-Oct.29
Current Consensus Forecast for 2015 Q2
Data Source: 1) 10-Yr UST (FORECAST 1-Yr Prior) – Bloomberg consensus projection of the 10-Year UST rate, 4 quarters ahead, based on economic forecasts from approximately 70 firms (see function “ECFC”); 2) 10-Yr UST (Actual) is from the US Federal Reserve’s H-15 Historical Data for the 10-Year Constant Maturity UST; 3) Net Fed TBA Commitment based on publically released NY Federal Reserve data for MBS purchases and sales.
7
SUCCESSFUL TBA BASED PROGRAMS - RAYMOND JAMES EXPERIENCE
Raymond James •Early Innovator – recognized need and led industry with early 2009 proposals•2009-2010 - assisted several HFAs on program implementation and expedited MSFTA process for state HFAs for TBA broker dealer services; •2011 – Expertise led to creation of Raymond James “Turnkey” program; implementation delayed due to servicer concerns over the use of MBS sale premiums•February 2012 – Raymond James kicked off two pilot “Turnkey” Programs. They have been in operation since that time•Raymond James now has 11 State HFA and additional local TBA “Turnkey” Program clients.
Characteristics of Successful Programs•Customized. RJ programs are tailored to each client•Focus on Lenders. Lender outreach and education is key. The fewer changes made when transitioning a bond program into a TBA based program, the easier the transition. •External subsidy is not a requirement for success. Many of RJ’s high volume programs have no external subsidy. Many programs also offer MCCs•Flexibility. Willingness to take advantage of bond financing when it is advantageous to do so
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