Mike Awadis
Senior Vice President
1620 26th Street, Suite 230 South
Santa Monica, CA 90404
Phone: 310.401.8060
Email: mike.awadis@firstsw.com
Single-Family Financing Dialogue
NCSHA 2015 Annual Conference
Nashville, Tennessee
Disclaimer
This presentation is intended for educational and informational purposes only and does not constitute legal or
investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product.
Information provided in this presentation was obtained from sources that are believed to be reliable; however, it is not
guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to
any attorney or advisor in any particular circumstances. The statements within constitute FirstSouthwest’s views as of
the date of the report and are subject to change without notice. This presentation represents historical information only
and is not an indication of future performance.
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HFA TBA Programs Continue to Grow – Despite Volatility
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Since July 2012 representing 11 state HFAs and over $6.8 billion in new mortgages
CYTD new mortgage originations of $3.25 billion
Average daily new locks in the last 2 QTRs and year-over-year are up over 100%
compared to the same period in 2014
TBA Program Benefits When Compared to MRB
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Provides a forward commitment mortgage program with no costs of issuance,
negative arbitrage and legal expenses
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Produces a significantly lower mortgage rate when compared with Pass-Thru and
traditional MRB structures
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Provide down payment and closing cost assistance without using HFA funds
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Gives HFA the option of offering refinances
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It can be used as a tool to accumulate MBS for future bond transactions
Flexibility to adjust rates as the market moves -- no yield implications
Can be used to provide financing for non-first time homebuyers
Can be combined with Mortgage Credit Certificates (MCCs) thus creating a lower
effective mortgage rate
Still more profitable for HFA than traditional MRBs and Pass-Thru structures both on
present value and ongoing basis
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Either “Pass-thru” or “Traditional MRB” structures
MFA has the option to repurchase its MBS at prevailing TBA levels
Expanded Product Offerings
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Offer a variety of rate, fee and DPA options including zero origination fee
Layer additional DPA from HFA funded sources
Structure a compelling conventional product
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GSE HFA 97% LTV, no LLPA and 18% MI coverage is the best
conventional product on the street for FTHB with or without DPA
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Make available a higher DPA option with the HFA product
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For our top 4 producing HFAs conventional loans represent over 40%
of overall volume
Fund the cash upfront MI
Lower the LTV to 95% to increase the chances of getting AUS
approval or to avoid investor credit overlays/condos
Spreads Between Fannie and Ginnie II Continue to Tighten
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Payment Comparison – Conventional to FHA
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After 5 Years ……..
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Pair-Off your TBA to Do an MRB Program
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Despite the tremendous advantages and efficiencies a TBA program
provides, some HFAs would rather do MRBs than TBA
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Hedging loans using TBA reduces the interest rate risk and allows the HFA
to accumulate loans for the MRB program
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Combine a new money deal with a refunding or using zeros
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FSC provides their TBA clients with the option to pair-off the hedges and
take back the loans to use in an MRB transaction
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Loans must meet MRB guidelines and not have an MCC attached
Pair-Off Process
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Master servicer provides the list of eligible loans for securitization
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HFA reviews the list and picks the loans it wants to retain for the MRB
transaction – “Retained Loans”
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Once HFA identifies the loans it has the option to either pair-off
immediately or request that hedge provider continue to hedge the loans
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HFA provides pooling instructions for “Retained Loans” to master servicer
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The MRB eligible MBS can be purchased by the HFA or be warehoused
using a liquidity facility (warehouse line) made available by hedge provider
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Pair-off amounts are settled between hedge provider and HFA on SIFMA
“good delivery” date
Legal Challenges – Pair-off Costs or Gains
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Hedge “Designation Costs” have to be identified and assigned by a certain
date
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Are hedge/pair-off costs acceptable expenses for the purpose of bond
yield calculation or opening the spread between the mortgage rate and
bond yield?
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What happens in the event of a gain at pair-off?