Making the most of TBA Executions Sept 2016 INNOVATE> Making the most of TBA Executions Marc Paskulin Manager National Housing Group Senior Vice President 916.486.2548 paskulin@gkbaum.com

Best Execution Options Loan Types & Pooling Agency Securities: Mortgage Backed Securities (MBS) Participation Certificates (PCs) Best Execution Options Government Loans FHA/VA/USDA/PIH Ginnie Mae MBS TBA Contract Specified Buyers Conventional Loans Fannie/Freddie Fannie Mae MBS Freddie Mac PCs Whole Loans TBA Contract Specified Buyers Cash Window

Market Pay-Ups for Government Loans “Pay-ups” are additional amounts paid by investors for MBS/PC pools with characteristics that provide prepayment protection and extend the average life. Higher coupons tend to pay higher pay-ups. GNMA II Custom Pool Pay-Ups MBS Coupon 3.00% 3.50% 4.00% Loan Rates 3.250% - 3.625% 3.750% - 4.125% 4.250% - 4.625% Max Loan Balance < $85,000 0.531% 2.031% 2.969% Max Loan Balance < $110,000 0.313% 1.406% 2.344% Max Loan Balance < $125,000 0.156% 0.781% 1.500% NOTES: Source: GKB Capital Markets Group, Pay-ups are represented as a % of par and are indications reflecting market conditions as of 09/22/16. They are subject to change and are locked in at the time the custom pool (no less than $1 million in size) is delivered. One way for an investor to protect against increased prepayments is via loan size. Smaller sized loans are less likely to refinance than larger sized loans due to the relative benefit. Because of the incentives associated with cheapest-to-deliver pricing, not all eligible MBS pools actually trade on a TBA basis. Higher-value pools (those with the most advantageous characteristics from an investor’s point of view) can command a higher price in the less liquid specified pool market. FRBNY Economic Policy Review, May 2013 Low Loan Balance (LLB) less than $85,000 Mid Loan Balance (MLB) less than $110,000 High Loan Balance (HLB) less than $150,000 Super High Loan Balance less than $175,000 Other Pay-Up Worthy Characteristics Pay-Up Uses Max Loan Balance < $150,000 CRA Credit Buy Down Loan Rates Max Loan Balance < $175,000 < 700 Credit Score Supplement Borrower Assistance No Mortgage Insurance (MI) CLTV (2nd Loans vs Gifts) Further Housing Initiatives

Investor Feedback on Pricing “Increasing issuance of loans originated by the various state finance agencies in the Agency MBS market has created opportunities for specified pool investors. We believe that, although differences in [home price appreciation] across states have been one of the main factors driving the observed prepay differences, servicer efficiency and the availability of refinance programs are also important.”  Nomura Securitized Products Weekly, Introduction to HFA Pools, August 12, 2016

Program Administration & HFA Cost/Benefit Analysis An HFA’s ability to capitalize on pay-ups depends on the HFA’s average loan size, monthly loan volume and relationship with its Advisor or Security Purchaser. Is the additional time and expense of managing your pipeline and pooling worth the pickup in additional value? In-House Advisor Administrator Responsibility HFA Security Purchaser MBS Pricing X MBS Hedging MBS Delivery Liability Revenue Per Loan Fee Pay-Ups GKB serves in all three capacities for its HFA clients. GKB has also trained HFAs for those HFAs interested in absorbing the TBA pricing, hedging and liability. For audit purposes, GKB can also serve as a back for all TBA operations. “Trans-FEE-ency”: every pay-up on every loan

Why Conventional Loans? HFA Preferred and HFA Advantage offer unique loan features and pricing concessions not available to Lenders for standard Home Ready and Home Possible loans. Lower Mortgage Insurance Coverage No Delivery Fees Higher Income Limits DPA Pricing   Take advantage of lower mortgage insurance premiums, particularly at the 700+ credit score level. HFA Preferred and HFA Advantage are available through the respective Cash Windows

Freddie Mac Cash Window HFA Advantage Pay-Ups Cash Window Pay-Ups Freddie Mac offers HFA Advantage markups on a per loan basis through its Cash Window and they can be locked in at the time of the loan commitment. No minimum pooling requirements! Freddie Mac Cash Window HFA Advantage Pay-Ups Loan Rates 3.375% - 4.000% 4.125% - 4.500% 4.625% - 5.000% Max Loan Balance < $85,000 0.594% 1.734% 2.695% Max Loan Balance < $110,000 0.500% 1.484% 2.133% Max Loan Balance < $150,000 0.406% 1.110% 1.414% Credit Score < 700 0.000% 0.187% 0.226% Easier to recruit new lenders, particularly banks and credit unions. Easier for HFAs to become a Freddie Mac “Seller” in their own right.   Attractive to those lenders who wish to price and hedge their own loans – at no additional cost - and retain the servicing rights (Cash Window offers both mandatory and best efforts pricing). Centralized reporting for a Multi-Servicer platform. Establish a dedicated interest only ongoing (paid monthly) payment stream in lieu of a per loan fee, as compensation for an HFA investment or as security for a Second Loan Bond. “Co-Issue” Seller and Servicer. Seller prices, hedges and delivers loan to the Cash Window, assigns the servicing rights at the point of sale to a designated HFA approved Servicer. Representations and warranties are split between Seller and Servicer. NOTE: Source: Freddie Mac, Pay-ups are represented as a % of par and are indications reflecting market conditions as of 09/22/16. They are subject to change and are locked in at the time of commitment. Pay-Up Uses Buy Down Loan Rates Supplement Borrower Assistance Further Housing Initiatives

Cash Window Pricing Model Easier to recruit new lenders, particularly banks and credit unions. Easier for HFAs to become a Freddie Mac “Seller” in their own right. Attractive to those lenders who wish to price and hedge their own loans – at no additional cost - and retain the servicing rights (Cash Window offers both mandatory and best efforts pricing). Centralized reporting for a Multi-Servicer platform. Establish a dedicated interest-only ongoing (paid monthly) payment stream in lieu of a per loan fee, as compensation for an HFA investment or as security for a Second Loan Bond. “Co-Issue” Seller and Servicer. Seller prices, hedges and delivers loan to the Cash Window, assigns the servicing rights at the point of sale to a designated HFA approved Servicer. Representations and warranties are split between Seller and Servicer. Easier to recruit new lenders, particularly banks and credit unions. Easier for HFAs to become a Freddie Mac “Seller” in their own right.   Attractive to those lenders who wish to price and hedge their own loans – at no additional cost - and retain the servicing rights (Cash Window offers both mandatory and best efforts pricing). Centralized reporting for a Multi-Servicer platform. Establish a dedicated interest only ongoing (paid monthly) payment stream in lieu of a per loan fee, as compensation for an HFA investment or as security for a Second Loan Bond. “Co-Issue” Seller and Servicer. Seller prices, hedges and delivers loan to the Cash Window, assigns the servicing rights at the point of sale to a designated HFA approved Servicer. Representations and warranties are split between Seller and Servicer.

INNOVATE> TBA is Here to Stay TBA will… still be used by many HFAs to limit market exposure as HFAs move back to Mortgage Revenue Bonds be a complement to Bonds to provide funding for Non First-Time Homebuyers, more moderate income homebuyers offer a fallback program should Bonds become no longer viable in the event of a volume cap shortage (?!), be a source for more loan production  

Enjoy Miami! Marc Paskulin National Housing Finance Group George K. Baum & Company 916.486.2548 paskulin@gkbaum.com Miami Innovation Tower GKB’s National Housing Finance Group: (people at the conference shown in bold) Jim Stretz, Casey Biegelsen, Kathy Li, Errin Jackson and Barton Withrow, Beth Riley, Scott Riffle, Larry Englande, Keith Tully, DeDe Cross, Misty Dalke & Gary Machak This report was prepared from data believed to be reliable but not guaranteed by us without further verification or investigation, & 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.