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Maximizing HFA Financial Health Amid Uncertainty

Explore strategies for managing Housing Finance Agencies' financial health effectively in an uncertain landscape at NCSHA's 2014 event in Boston. Dive into balance sheets, parity ratios, prepayment models, interest rate scenarios, and more to make informed decisions. Discover the importance of cash flow management, debt structuring, and future savings evaluation for sustainable growth. Learn the significance of continuous lending programs, equity management, and market positioning to safeguard against risks. Gain insights on program development, budgeting, and strategic planning to ensure long-term success in the housing finance industry.

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Maximizing HFA Financial Health Amid Uncertainty

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  1. Managing Your HFA’s Financial Health in the Face of Uncertainty NCSHA 2014 – Boston October 21, 2014 cfX Incorporated 588 Broadway, Suite 1203 New York, NY 10012

  2. HFA Aggregate Balance Sheets ($ Billions)

  3. HFA Aggregate Equity ($ Billions)

  4. HFA Aggregate Parity Ratios (Equity as a % of Bonds)

  5. Management Scenario Assumptions • Adjustments from Rating Agency Assumptions • SBPA fees • Redemption frequency & ordering • Operating distributions • Prepayment recycling • Universal cap and mortgage yield compliance • Foreclosure frequency and loss severity • Future debt issuance • Prepayment Assumptions

  6. Historical Prepayments as % of PSA Model

  7. Use the OTS Prepayment Model Instead of PSA • Prepayments are derived from interest rates • 3 Factors • Age of the loan • Seasonality – time of the year • Refinance Factor • Compare Market Loan Rates vs. Loan Coupon • Higher Rate Loans Prepay > Lower Rate Loans • Rates fall ---- Prepayments up • Rates rise ---- Prepayments down • % of OTS calibration still necessary

  8. Projected Prepayments 6% Loan Using OTS Model

  9. Projected Prepayments 4% Loan Using OTS Model

  10. Historical Prepayments as % of PSA Model

  11. Historical Prepayments as % of OTS Model

  12. WSJ Surveys - Average Predicted 10 Year UST Rates

  13. WSJ Surveys - Average Predicted 10 Year UST Rates

  14. WSJ Surveys - Average Predicted 10 Year UST Rates

  15. WSJ Surveys - Average Predicted 10 Year UST Rates

  16. WSJ Surveys - Average Predicted 10 Year UST Rates

  17. Management Cash Flow Interest Rate Scenarios

  18. Management Cash Flow Scenarios • Interest Rate Scenarios • Current Rates • Ramp Up +100, +200, +300, +400bp • Ramp Down -100, -200, -300, -400bp • Sometime Bracket with Rating Agency Rates

  19. Management Cash Flow Scenarios • Debt Structure Evaluation • 3 vs. 4 vs. 5 Year PACs • PACs vs. Cross-Calls/Recycling • Variable/Swaps/Unhedged • Economic Refunding Evaluation • Future Savings vs. Upfront Costs • PV Savings Before and After Tax Compliance • Future Operating Distributions • Sensitivity to future interest rates • Budgeting/Planning

  20. Management Cash Flow Scenarios • Validate Continuous Lending Programs • Impact of “Below Full Spread” Lending • Model captures cross-call & recycling opportunities (Cross-call ~ 27bps) • Leverage Accumulated Equity/Excess Spread • Manage & Sustain Size of MRB Balance Sheet • Maintain Market Position • Program Development • Cost/Benefit of Multiple Rate Programs • Cost/Benefit of Changes in Lender Comp.

  21. Management Cash Flow Scenarios • Final Thoughts • HFAs have had > 40 years of success • Will ballooning equity + shrinking balance sheets expose HFAs to raids ? • Liabilities might be same as 2002 but scenario modeling capabilities are way up • Management Scenario Cash Flows can be an effective tool for HFA Managers • Model results from Saturday night • Not Pass Interference !!!

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