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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.

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How HFAs Are Financing Homeownership in a Complex Time

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  1. How HFAs Are Financing Homeownership in a Complex Time October 20, 2014 Joe Tait joseph.tait@raymondjames.com

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. Successful tba based programs - Raymond James experience • 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

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