New Issue Bond Purchase Program: Going Forward

1. New Issue Bond Purchase Program:Going Forward For NALHFA Spring Meeting May 18, 2011 Gene Slater CSG Advisors

2. NIBP 2 • NIBP: What’s Been Learned • Great Value of Treasury and HFAs working together, with GSEs • Very successful and efficient administrative system • Treasury’s ability to make program work through different rate environments • Value of rate-lock • Adaptability of standardized program to many markets and strategies: • Warehousing • GNMA sales • Leveraging of limited NIBP allocation for both MF and SF • Success of shorter maturity market bonds • Success in: • Eliminating or highly limiting negative arbitrage • Supporting fixed rate bond programs • Supporting highly secure, often MBS or risk-share, lending

3. NIBP 2 • NIBP: Value of Experience • Many HFAs, especially locals, who didn’t initially participate now see how valuable and successful it is • Numerous state and local HFAs have fully utilized or committed their entire allocations or are limiting production to ration what is remaining • Single-family volume has often heavily depended on available downpayment assistance • Demand by issuer, by market, by SF and MF has often been very different than initially expected • Experience now provides much better basis of gauging future demand

4. NIBP 2 • Critical Need for NIBP Hasn’t Changed • Long-term tax-exempt bond rates compared to mortgage rates • Overwhelming negative arbitrage • Weak housing markets • Key Questions Going Forward • Can this extremely valuable experience, operating system and relationships continue to be used? • Is there a way to do this under existing legislation?

5. NIBP 2 • Options for NIBP 2 Given HERA Helped Develop Two Possible Options • Federal Reserve in the role of Treasury • Recycling or exchanges of existing MBS • Potential reasons • Concerns • Potential way for Treasury to provide • Without needing another party • Already established system • Potential legal approach • Exchange with Fannie/Freddie • Treasury exchanges existing Fannie/Freddie MBS for Fannie/Freddie NIBP 2 Securities

6. NIBP 2 Potential Approach: Exchanging for MBS Currently Held By Treasury December 2009 2011 HFA’s HFA’s Issue Program Bonds Issue NLBP2 Program Bonds $13.8 billion Est. $15 billion Sell Exchanged MBS Fannie/Freddie Fannie/Freddie Market $15 billion Sell Fannie/ Freddie NIBP Securities Est. Exchange Fannie/ Freddie NIBP 2 Securities $13.8 billion $140 billion $15 billion Sell MBS $125 billion Sell Fannie/ Freddie MBS Fannie/ Freddie MBS Treasury Treasury

7. NIBP 2 • Potential Benefits • No new funds required • No change needed to HERA • Exchange MBSs that Treasury is planning to dispose of over next year anyway • Same administrative system • Only Proposed Adjustments to Increase Success • Program bonds with up to 3% premiums used solely for downpayment assistance Why critical • Local HFAs and Many state HFAs have few or greatly reduced resources • NIBP success has been directly linked to downpayment assistance • FHA changes • Importance of downpayment assistance • Flexibility between single-family and multi-family allocations • To improve performance and match market demand

8. NIBP 2 • Increase Small Allocation Limit • To $50 million or $100 million instead of $25 million • Enables successful small programs to continue and not run out of funds quickly • Overall leveraging of program remains substantial • Allows smaller issues to leverage NIBP and GNMA sales