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Programs to Assist Homebuyers Presentation to: National Association of Local Housing Finance Agencies Annual Conference

Programs to Assist Homebuyers Presentation to: National Association of Local Housing Finance Agencies Annual Conference April 25 – 28, 2012 Austin, Texas. Welcome to Texas ! Local HFC’s have led the nation in supporting housing! Local Issuers have:

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Programs to Assist Homebuyers Presentation to: National Association of Local Housing Finance Agencies Annual Conference

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  1. Programs to Assist Homebuyers Presentation to: National Association of Local Housing Finance Agencies Annual Conference April 25 – 28, 2012 Austin, Texas

  2. Welcome to Texas! Local HFC’s have led the nation in supporting housing! Local Issuers have: • Issued Bonds under NIBP (New Issue Bond Program purchase thru Fannie/ Freddie/ Treasury). • Issued MCC’s. • Provided down payment assistance. • Utilized funds under Housing & Economic Recovery Act (HERA) • Benefited from provisions of Gulf Opportunity Zone Act. • Supported housing through a period of significant challenges. • Enjoyed (relatively) stable home prices and growth in employment.

  3. Advantages of MCC • An MCC is a direct companion to a mortgage loan, saving 10-50% of the interest on the loan. • Instead of giving tax benefits to a bond investor in exchange for a reduced bond and mortgage rate, MCCs give the benefit directly to home buyers. • Works now, if bond programs are not practical. • Provides savings to reduce monthly housing cost. • Is a companion to any loan available, except a bond loan. (continued)

  4. Advantages of MCC • Allows borrowers to get the best mortgage rate, then save 35% of the interest as a federal income tax credit. • Can help families qualify for their loan, and the significant savings help them stay in the home by receiving $167/month savings. • MCCs are easy to use and benefit to the borrower. Lenders appreciate the ease of use of MCCs. • MCC can be combined with down payment assistance, TBA Program, second mortgage or other assistance program to help monthly affordability and cash to close.

  5. Advantages of Bonds • Local Issuers have historically structured and priced bonds in order to provide the lowest possible mortgage rate. • Bond loans have often provided down payment assistance grants. • Bond loans have sometimes been combined with second mortgages to fund closing costs. • Bond loans work regardless of borrowers’ tax situation, and provide ongoing fixed interest rate without changing borrowers’ tax treatment. • Bond Programs can be readily marketed, relying on lower mortgage rate. • Bond programs can benefit issuers with accumulation of assets or release of program fees and cash flow.

  6. Bond Loan/MCC Comparison(based on a $120,000 loan and 35% MCC) Rate Comparison Open Market Loan Bond Loan Loan + MCC Interest Rate 4.25% 3.75% 4.25% MCC Savings 1.50% Net Cost 4.25% 3.75% 2.75% Payment Comparison Open Market Loan Bond Loan Loan + MCC Monthly Payments on a $120,000 Loan $590 $556 $590 MCC Savings TO HOMEOWNER $0 $0 ($148) Monthly Cost $590 $556 $442

  7. MCCs can save money MCC Savings Loan Amount $120,000 Rate 4.25% Monthly Payment-Principal/Interest 590 Tax & Insurance 100 Total Monthly Payment 690 First Year Interest $5,100 MCC Dollar-for-Dollar Tax Credit @ 35%= $1,785 Savings continue each year so long as the borrower retains their mortgage and occupies the home as a primary residence. Borrower can receive benefit as an annual tax refund, or receive benefit monthly through reduced withholding, by filing a new W-4. Mortgage Interest Deduction on remaining interest: $3,315

  8. MCC taken: Annually or Monthly Total income $70,000 $70,000 Tax amount 10,000 10,000 MCC Tax Credit @ 35% 1,785 1,785 Withholding 8,000 6,215* Refund 1,785 - Initial Cost = 1% of the loan amount plus $150: $1,000 + $150 = $1,150 *Adjust federal withholding to increase take-home $148/month

  9. Why Consider Assisting Borrowers Now? • The need for housing and for homebuyer assistance is greater than ever. • MCC Programs are available in all market conditions. • Mortgage Revenue Bond Programs are not currently practical. • TBA* or other programs may provide down payment assistance. • Tightening credit market makes it difficult for homebuyers to purchase a home - a bond or MCC program allows issuers to help buyers in a VERY tough market. (continued)

  10. Why Consider Assisting Borrowers Now? • Programs reduce the cost of homeownership for qualified buyers, and lenders can use the benefit to help qualify borrowers for the mortgage loan. • Programs appeal to lenders because they can continue to originate loans, often using their own products and even retaining servicing. • MCCs will keep lenders motivated to work with the issuer, and stay involved until it is feasible to complete a bond issue. • Program using committed delivery with periodic rate “To Be Announced” loan pricing.

  11. Low Interest Rates? A Great time for MCCs!

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