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How HFAs Are Financing Homeownership in a Complex Time. October 20, 2014. Joe Tait joseph.tait@raymondjames.com. PLANNING AHEAD IN A COMPLEX TIME – PROJECTIONS VS. ACTUAL.

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How hfas are financing homeownership in a complex time

How HFAs Are Financing Homeownership in a Complex Time

October 20, 2014

Joe Tait

joseph.tait@raymondjames.com


Planning ahead in a complex time projections vs actual
PLANNING AHEAD IN A COMPLEX TIME – PROJECTIONS VS. ACTUAL

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.

  • 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


Planning ahead in a complex time qe3 no subsidy for hfas
PLANNING AHEAD IN A COMPLEX TIME – QE3 – No Subsidy for HFAs!

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.

  • 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


How are hfas financing homeownership today
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


How hfas are financing homeownership in a complex time
Financing homeownership in a complex time - evaluate alternatives and execute using lowest cost of finance

Recent Comparison of 3rd Party TBA-Based “Turnkey” vs. Bond Funded Single Family Financing


Planning ahead in a complex time what does the future hold
PLANNING AHEAD IN A COMPLEX TIME – what does the future hold?

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.

  • 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


Successful tba based programs raymond james experience
Successful tba based programs - Raymond James experience hold?

  • 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