Mortgage Securitization and the “TBA” Market National Conference of State Housing Boards Educational and Development Workshop October 14, 2017

Mortgage Securitization The process of combining individual mortgages of similar characteristics in a pool and selling debt securities that draw interest and principal payments from the pool of mortgages. 

Types of Mortgage Backed Securities (MBS) Mortgage pass-through securities: Security owners receive monthly payments that are a proportional share of the interest and principal payment received by a mortgage pool. Collateralized mortgage obligation: Security where the mortgage pool is carved into separate sections, or tranches, having different payment priorities and characteristics.  

Why Securitize? Market Liquidity Risk Diversification/Transfer Transactional Scale

HFA Single-Family Secondary Mortgage Markets “TBA” Market for Ginnie, Fannie, & Freddie Securities Whole Loan Cash Sales to Loan Aggregators Tax-Exempt & Taxable Housing Bonds Private Placement of MBS Hold in Portfolio

30-Year Conventional Mortgage Rate

TBA Market (To Be Announced Market) “TBA” is used to indicate that the investor is acquiring some portion of a pending mortgage pool of as-yet unspecified mortgages, which will be specified at a given delivery date.

TBA Market What Sellers and Investors Know: Issuer Guarantor/Mortgage Loan Type Security Coupon Rate Mortgage Interest Rate Range Settlement Date Investment Amount

TBA Security Issuance Process Homebuyer/Borrower HFA Pricing Decision Participating Lender Secondary Market Commitment/ Financial Hedge Loan HFA/Master Servicer Loans Pooling and Securitization (GNMA/FNMA/FHLMC) Mortgage Security Security Dealer Mortgage Security Investor(s) Master Servicer Guarantor Document Custodian Fiscal Agent HFA Financial Advisor Secondary Marketing Agent

TBA Security Issuance Process Pricing Decision: Real-Time Market Pricing Local Competitive Market Execution Costs Profit Margins Other Factors

TBA Program Considerations Secondary Market Seller/Servicer Approvals Product Differentiation Loan Pipeline Management Transaction Size and Costs Cash Flow Management

Whole Loan Cash Sales to Fannie Mae and Freddie Mac Homebuyer/Borrower HFA Pricing Decision Participating Lender Secondary Market Commitment/ Financial Hedge Loan HFA/Master Servicer Loans Fannie Mae/Freddie Mac HFA Financial Advisor Secondary Marketing Agent

Tax-Exempt Housing Bonds – MBS (Traditional Approach) Bond Investors HFA Pricing Decision Homebuyer/Borrower Mortgage Security Tax-Exempt Bond Trust Participating Lender Loan HFA/Master Servicer Loans Mortgage Security Pooling and Securitization (GNMA/FNMA/FHLMC) Trustee Rating Agency Bond Attorney HFA Financial Advisor Investment Banker Master Servicer Guarantor Document Custodian Fiscal Agent

Pass-Through Bond Financing Homebuyer/Borrower HFA Pricing Decision Participating Lender Secondary Market Commitment/ Financial Hedge Loan HFA/Master Servicer Loans Security Dealer(s) Pooling and Securitization (GNMA/FNMA/FHLMC) Mortgage Security Tax Exempt Bond Trust Mortgage Security Bond Investors Master Servicer Guarantor Document Custodian Fiscal Agent Trustee Rating Agency Bond Attorney Investment Banker Financial Advisor HFA Financial Advisor Secondary Marketing Agent

Questions