2014 Annual Conference Structuring Homeownership Programs In a Competitive Market

1. 2014 Annual Conference Structuring Homeownership Programs In a Competitive Market Who? What? Why? JIM STRETZ Senior Vice President stretz@gkbaum.com October 2014

2. Changing HFA Strategies HFA’s switching to (or including) MBS’s are also selling into the cash or TBA market using their balance sheets, “zeros” or TBA as a rate hedge.

3. HFA Rates as of October 13, 2014 Freddie Mac Primary Mortgage Market Rate 4.12% Rates shown above are for unassisted loans. HFAs that do not have a posted rate on their website include: Arkansas, Indiana, Massachusetts and Virginia. (*) Denotes HFAs with no difference between the DPA and no DPA rate, (D) denotes rates that include DPA, (M) denotes HFAs advertising an MCC program on their websiteand (L) a local premium priced DPA program as competition.

4. HFA Rates as of January 13, 2014 Freddie Mac Primary Mortgage Market Rate 4.510% HFAs that do not have a posted rate on their website include: Arkansas, Hawaii, Indiana, Massachusetts, Mississippi and Virginia. (D) denotes rates that include DPA, (M) denotes HFAs advertising an MCC program on their website.

5. Who is Doing What? Rhode Island Connecticut New Jersey Delaware Maryland Washington, D.C. U.S. Bank – 3rd Party Hedge Non-TBA – Self Serve Idaho – 3rd Party Hedge Alabama – 3rd Party Hedge Idaho – Self Hedge U.S. Bank – Self Hedge Self Hedge – Self Serve Non-TBA – Multiple Servicers U.S. Bank – Non TBA Alabama – Self Hedge

6. The Fed Driving Mortgage Rates Down Timeline of Asset Purchase Programs USD, Billions (Par) SOMA Domestic Securities Holdings Source: Board of Governors of the Federal Reserve System

7. TBA – Where the Rate Subsidy is Found ‘‘ Since the beginning of the current purchase program in 2012, we have purchased nearly $75 billion in MBS on average per month, including reinvestments. This translates into about 50 percent of monthly gross issuance, below the monthly purchase rate of roughly two-thirds, during the first round of large-scale MBS purchases in 2009. – SIMON POTTER, Federal Reserve Bank of New York ‘‘ SOMA Agency MBS Purchases Billions of U.S. Dollars Source: Federal Reserve Bank of New YorkNote: Figures are monthly

8. The State of the Market SOMA Agency MBS Purchases as a Share of Gross Fixed-Rate Issuance Percent Source: Federal Reserve Bank of New York; eMBSNote: Figures are monthly

9. The Fed’s Sweet Spot SOMA Agency MBS HoldingsAugust 2014 Percent Coupon (Percent) Source: Federal Reserve Bank of New York; eMBS

10. Your Opportunities

11. The Mortgage Market

12. Mortgage Rates and MRBs The Mortgage Market

13. Setting Your HFA Product Apart – The Basics of Adding Value Lower Rates Lower Rates Better Distribution - paying competitive SRPs - higher level of service - using HFA status in Community - marketing to Realtors and Lenders - Streamline process - Taking Broker Risk Down Payment Assistance - Flexibility in setting rate and DP amount - Not using Premium Pricing as Source Other- - MCCs - Listing of Rates on Industry Pricing Services • Using balance sheet subsidy-refundings, short term debt and reserves • HFA preferred pricing • Fannie Mae risk share • Taking PMI exposure risk • Using CRA motivated investors • Drive costs down and revenues up Better Distribution • Paying competitive SRPs • Higher level of service • Using HFA status in community • Marketing to realtors and lenders • Streamline process • Taking broker risk Down Payment Assistance • Flexibility in setting rate and DP amount • Not using premium pricing as source Other • MCCs • Listing of rates on industry pricing services • Differentiate between customers and constituents

14. Summary Take Control of Your Program • Tapering of the Federal Reserve Stimulus bond buying program might increase mortgage rates. • GSE reform has set as a goal more reliance on private label issuance. • HFA whole loan indentures are functionally private label mortgage securities. • As GSE fees are increased, HFA conventional whole loan programs get more competitive. • Dropping MRB requirements when using market rate programs will make it harder to convert back. • Successful HFAs have both first-time homebuyer and higher rate non-first-time homebuyer products. • HFAs are finding other ways to provide better products beyond down-payment assistance and Fannie preferred pricing and products. • Use of other HFAs as Master Servicer • Using Program Advisors • Stay mission focused • Use of Market Rate Programs are familiarizing HFA staff on how to use the TBA market to hedge pipelines and execute MRB, TBA or Market Rate Programs in-house.

15. So Many Options- How can you choose? So Many Options- Which strategy is right for your market?

16. The Good News Competition Just Makes Us Stronger! This report was prepared from data believed to be reliable but not guaranteed by us without further verification or investigation, and does not purport to be complete. It is not to be considered as an offer to sell or a solicitation of an offer to buy the securities of the entities covered by this report. Opinions expressed are subject to change without notice. George K. Baum & Company may act as a principal for its own account or as agent for another person, in connection with the sale or purchase of any security which is subject in this report.