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Using NIBP and TCLP

Using NIBP and TCLP. Sarah Apsel, Domestic Finance Theo Polan, Fiscal Operations and Policy. May 19, 2011. Program Background: Historic Muni vs. Treasury Yields.

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Using NIBP and TCLP

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  1. Using NIBP and TCLP Sarah Apsel, Domestic Finance Theo Polan, Fiscal Operations and Policy May 19, 2011

  2. Program Background: Historic Muni vs. Treasury Yields • Spreads on municipal housing bonds widened to levels where the economics of the HFA business model could not produce a competitive mortgage rate 2

  3. 30yr Muni AMT Housing Bond Rate - 10yr UST Spread HFA Initiative Concept proposed 3

  4. Program Background 4

  5. NIBP Allocation Breakdown • A total of $15.3 bln was allocated for usage under the New Issue Bond Program in December 2009 • Local HFA allocations totaled $2.0 bln, or 13.19% of total allocations 5

  6. NIBP Usage Breakdown • As of April 30, 2011, HFAs had used a total of $6.19 bln, 41% of total NIBP allocated funds • As of April 30, 2011, Local HFAs had used a total of $0.76 bln, 38% of Local allocated funds • Local HFAs have drawn down 12% of total funds used to date 6

  7. Local HFA Usage Breakdown • The majority of Local HFA issuance has been in MultiFamily NIBP • Local HFAs have drawn down $224 mm in Single Family funding • Local HFAs have drawn down $539 mm in MultiFamily funding 7

  8. NIBP Usage Pre- and Post- Program Changes • Prior to the re-rate lock on September 1, 2010, HFAs drew down a total of 15% of allocated funds*. • In the four months from the Program changes taking affect and December 31, 2010, HFAs drew down an additional 14% of funds from escrow. • Local HFAs used 7% of funds prior to September 1, 2010*, and an additional 31% of funds in the eight months between Program changes taking effect and April 30, 2011. 8 *Figures include simultaneous issuance

  9. TCLP Update • 3 HFAs have exited • Other reductions due to gradual redemption • Partial reissuance for switch to private liquidity now permitted 9

  10. Housing and Economic Recovery Act of 2008 10

  11. Housing and Economic Recovery Act of 2008 HERA MBS Purchase Authority Subject to Credit Reform Limited to GSE Obligations ∑PV Expiration 12/31/2009 Positive Subsidy S > 0 : Cost to Gov Negative Subsidy S < 0 : Profit to Gov 11

  12. Obligation Process Considers legality, policy implications, cost/benefit Limits duration of purchase authority Approves credit subsidy calculations SF/MF Are separate Programs

  13. New Issue Bond Program Changes ~4.0% 3 Draws 12/31/10 Period to draw funds from escrow extended one year Each HFA/Indenture now allowed 6 total draws from escrow Interest rate re-lock provided to allow for bond issuance at competitive rates ~3.0% 6 Draws 12/31/11 13

  14. New Issue Bond Program Rate Ceiling Full Range HFA’s choice of day during ceiling lock period: Dec 2-10, 2010 Date of Notice of Interest Rate Conversion 7 days prior to release 10 yr Tsy Minimum + Risk Premium • All rates struck as of the close of business the previous business day 14

  15. NIBP Rate Ceiling Window • HFAs took advantage of the relatively low 10 yr CMT at the beginning of the rate ceiling window, and locked in 2011 ceilings before rates trended higher 15

  16. HFA cost of capital under NIBP vs 10yr UST Introduction of re-rate lock • HFA CapCost = 0.6 x NIBP rate + 0.4 x Market Bond Execution • NIBP rate = 10yr CMT + 60 bps (AAA credit premium) • Dec 2009 – Aug 30, 2010 CMT = 3.37% (WAvg Locked 10yr CMT rate) • Aug 31, 2010 – current CMT = fluctuates with market (re-rate lock) • Market Bond Execution = 3.4% (Avg WAC of 75 market bond transactions) • Market bond transaction dates: Dec 2009 to current (AAA-AA issuers) • Avg WAC of market bond transactions was similar for: 1.) the entire time series; 2.) pre modification period; and 3.) post modification period 16

  17. Influence of re-rate lock and 10yr yields on NIBP cost of capital Introduction of re-rate lock • HFA relative cost of capital improved with introduction of re-rate lock 17

  18. HFA Full Spread MBS Rate vs FRE Weekly Primary Rate Introduction of re-rate lock • Doesn’t account for potential differences in borrower credit quality and GSE LLPAs (LLPA = loan level price adjustments) • Full Spread HFA MBS = HFA Capital Cost + 112.5 bps • HFA capital cost calculated using same method as previous chart • Dec 2009- Aug 2010 = Wavg Locked 10yr CMT + Avg Mkt Bond WAC • Aug 2010 – current = Market CMT rate + Avg Mkt Bond WAC • FRE Weekly Primary Rate = weekly primary rate survey 18

  19. Single Family Escrow Drawdown HFAs may increase or decreases $ amt, after drawdown notice is given. $ HFAs may NOT extend draw date (later), after drawdown notice is given. < 60 days Time Time Notification of release 21 days prior to release date* $ *HFAs must submit notice of escrow withdrawal at least 21 days prior to release date

  20. MultiFamily Escrow Drawdown HFAs may increase or decreases $ amt, after drawdown notice is given. $ HFAs may NOT extend draw date (later), after drawdown notice is given. < 120 days Time Time Notification of release 14 days prior to release date* $ 20 *HFAs must submit notice of escrow withdrawal at least 14 days prior to release date

  21. Avoid Blackout Dates All HFAs T-Bill Investors Thursdays only 21

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