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NFMA – Advanced Seminar – Real Estate Backed Bonds

NFMA – Advanced Seminar – Real Estate Backed Bonds. STATE HOUSING FINANCE AGENCY BONDS. John Wagner Partner. Nature of State Housing Finance Agencies Unique quasi-governmental financial organizations Professional staff Self supporting History

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NFMA – Advanced Seminar – Real Estate Backed Bonds

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  1. NFMA – Advanced Seminar – Real Estate Backed Bonds STATE HOUSING FINANCE AGENCY BONDS John WagnerPartner January 26, 2012

  2. Nature of State Housing Finance Agencies • Unique quasi-governmental financial organizations • Professional staff • Self supporting • History • Initially multi-family programs (HUD § 236, § 8) • National expansion with single family programs • LIHTC administration • Legal Organization • “Authority” – separate instrumentality; most autonomy • “Agency” – less autonomy; separate but substantial state control • “Department” – part of state administration; little autonomy • Preferred federal housing finance program delivery system • Benefit from special programs • Federal tax benefits • SEC exemptions • Revenue Sources • no tax support • program asset “spread” • investment income • program fees • Multiple overseers/stakeholders • HUD/IRS/SEC/States • bondholders/financial counterparties

  3. Bond Legal Structures • General obligation vs. limited/revenue obligation • G.O. bonds secured by pledge of unrestricted assets; also usually a pledge of specific assets • Limited/revenue bonds secured only by pledged assets • “Moral” obligation • Rarely used any more • Open vs. closed (stand alone/conduit) resolutions/indentures • Open – more in the nature of a secured borrowing • Closed (stand alone/conduit) – more of a classic ABS • Statutory Pledge • Affords greater protection and flexibility

  4. Typical Bond Resolution/Indenture Provisions • Requirements for credit of program loans/assets • E.g. – GNMA, FNMA, FHLMC MBSs; FHA insurance; PMI insurance • Investment quality requirements • Keyed to rating agency requirements as well as state law • Cash Flow and Parity tests • Cash Flows based on rating agency projections • Parity test usually well over 100% • Cash Withdrawal Limitations • Usually only excess cash flow plus parity test • Additional bond requirements • Adequate staffing requirement

  5. Program Loan/Assets Credit Protections • Whole loans (SF) • Tax and state law requirements (e.g. – income verifications, no “no doc” or signature loans) • Mortgage insurance (FHA, VA, RD, PMI) • Trend to SF GNMA/GSE MBSs • Multi-family loans • FHA, GNMA, GSE, LOCs • Section 8 • Tax Credits/Low LTV’s

  6. Dodd-Frank Effect • More disclosure • Both upon issuance and continuing • More timely disclosure • More conservative and regulated SF mortgage underwriting • Stronger mortgage credits • But also smaller market • Continued federally favored status • SEC exemptions • Various consumer regulation exceptions

  7. Issues Facing HFA’s • Lack of taxable/tax-exempt spread • Use of SF down payment assistance to offset • 4% LIHTCs and CRA for MF • Smaller national SF housing market • Low investment rates • Increased federal regulation (still favored, however) • Handling expanded federal programs (more fees?) • Still some counterparty risk to deal with

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