SHFAs’ Strategic Management Yields Growth Mikiyon Alexander – Director, Sector Leader October 16, 2017

SHFAs Showed Stability with Some Positive Trends SHFAs’ Balance Sheets Have Stabilized Equity Continues to Grow Strong and Continuous Improvement in Net Interest Spread (NIS) Declining Leverage Ratios Key Credit Concerns are Managed

SHFAs Aggregate Balance Sheet C:\Users\handerso\Desktop\Mikiyon\Copy of Charts for Intro Final - California Removed.xlsx, Aggregate BS Chart Chart 1

Total SHFA Equity C:\Users\handerso\Desktop\Mikiyon\Copy of Charts for Intro Final - California Removed.xlsx, Aggregate Equity Chart Chart 2

Median Net Interest Spread C:\Users\handerso\Desktop\Mikiyon\Copy of Charts for Intro Final - California Removed.xlsx, Median NIS Chart 2

Median Adjusted Debt to Equity C:\Users\handerso\Desktop\Mikiyon\Copy of Charts for Intro Final - California Removed.xlsx, Median Adjusted Debt to Equity Chart 2

Median Net Operating Revenue C:\Users\handerso\Desktop\Mikiyon\Copy of Charts for Intro Final - California Removed.xlsx, Median NOR Chart 2

Median NOR as % of Total Revenue C:\Users\handerso\Desktop\Mikiyon\Copy of Charts for Intro Final - California Removed.xlsx, Median NOR as % of TR Chart 2

SHFAs Shift to Alternative Financing Options SHFA Issuance 2012 – 2016 C:\Users\handerso\Desktop\Mikiyon\Data on Loan Financing During 2016.xlsx, Issuance and Volume Chart 8 Source – Bond Buyer

Alternative SHFA Strategies for New Loan Production SHFAs have changed their business model and have created new revenue sources by developing new ways to originate mortgage loans (i.e., to-be-announced (TBA) market/direct sale of mortgage- backed securities (MBS) and MBS pass-through structure). The TBA program is still being utilized by SHFAs. Taxable secondary market execution using TBA continues to be a common financing method to fund new money single family mortgages as it allows the SHFA to build assets while maintaining its hedging infrastructure and flexibility. Some SHFAs are issuing variable rate debt to produce a lower cost mortgage and are also using refunding resources to create blending opportunities to finance new loans at attractive rates. SHFAs have created loan programs to reach specific audiences such as military service members, police and borrowers with more than $25K in student loan debt. Several SHFAs have reestablished their single family new money programs funded by various mortgage revenue bond structures.

Types of Financing – FY 2016 C:\Users\handerso\Desktop\Mikiyon\Chart in Microsoft PowerPoint.xlsx, Sheet1 Chart 1 Source – Fitch

Loan Performance and Shrinking Portfolios SHFA loan portfolio performance has improved significantly over the last few years. The TBA program has caused the asset base (loan portfolios) for SHFAs to shrink below historic levels, however, debt levels and interest expense on bonds have decreased at a higher pace, causing for stable equity levels. Delinquency statistics may appear overstated with some contracting portfolios and a number of programs in run off mode. Some portfolios have exhibited loan performance issues due to adverse selection. SHFA portfolios sensitive to declines in home price appreciation especially for high loan to value loan slight changes in market valuation can have a deep impact.

First Time Homebuyers First time homebuyers made up the smallest share of US homebuyers hitting a new low of 32% compared with 40% historically. Student loan debt and higher rents are making it difficult to save for a down payment, and more conservative underwriting standards impact home ownership levels. Millennials (age 18–34) are coming of age as first time homebuyers and their statistics are non- traditional. Following 2007, annual new household growth declined dramatically due, in part, to the reluctance of Millennials to move into the homebuyer market. SHFAs will need to capture the Millennial segment of the population in order to increase loan originations and add to their balance sheets. The potential for pent up demand on the part of Millennials may offer growth opportunities for SHFA loan production. Some SHFAs are tailoring their marketing strategies such as introducing the use of online options to appeal to this segment of the market.

Stable Sector Outlook Continued Trend of Improving Housing Market Fundamentals Key Credit Issues includes: Deleveraging increases equity TBA dominates the sector in 2016 and potentially 2017 Alternative SHFA strategies for new loan production has been a success The importance of down payment assistance is widely understood Loan performance and shrinking loan portfolios First time homebuyer